CA Pension Fund Faces Crisis After Shunning Guns, Tobacco

The California State Capitol / Getty Images
June 17, 2019

California's public pension fund is facing an internal crisis over its past decisions to restrict its investments to socially conscious causes. A report from the Wall Street Journal indicates it is considering pivoting away from its socially conscious divesting to address its increasing budget crisis.

The California Public Employees Retirement System, simply known as Calpers, is wrestling with a budget deficit that is partially a result of the fund's decision to ban investments in tobacco companies, the report states.

The fund missed out on more than $3.5 billion due to its divestment from tobacco stocks, a December 2016 recommendation found. The Journal reported that the fund made the decision to divest from tobacco stocks in 2000. The decision cost it billions over a 16 year period and officials recommended it drop the ban.

After the recommendation, Calpers Chief Executive Marcie Frost said the divestment strategy limited potential investments for the fund in 2017. Last year, the board did not yield to increased calls to divest from more gun manufacturers in the wake of the Parkland school shooting in Florida.

One board member, Jason Perez, won his board seat last year thanks to his pledge to keep politics away from investing, saying he was against limiting the fund's potential sources of revenue.

Calpers, which is currently worth approximately $365 billion, was $139 billion short of what is required to meet its obligations, according to June 2017 numbers reported by the Journal. 

Calpers's board plans on a total review of the fund's divestment strategy by 2021.

The fund has made some beneficial divestment choices, however. It divested from companies linked to Sudan and Iran, along with thermal coal manufactures, resulting in a benefit of $346 million, according to the Journal.

The Los Angeles Daily News reported that a California assemblyman also introduced legislation that proposes requiring that the fund divest from the government of Turkey due to the government's refusal to recognize the Armenian Genocide. The fund's investment in the government is worth between $77 million and $350 million.

Calpers is also not the only public pension fund facing a deficit crisis. The total budget deficit for pensions in the entire United States is $5.2 trillion, according to Forbes.

Published under: California , Pension