The American Interest
Analysis by Walter Russell Mead & Staff
Calpers Takes a Bath on Green Investments

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The California Public Employees’ Retirement System, America’s largest public  pension fund, has truly outdone itself. In a characteristically Californian combination of poor financial management and green energy failure, Calpers has lost millions in green energy investments that saw an annualized return of negative 9.7 percent, according to the Washington Free Beacon. In light of these losses, Calpers has finally come to its senses and chosen to back off these investments, although sadly, this realization comes after it invested $900 million in “clean tech”:

“We’re all familiar with the J-curve in private equity. Well, for CalPERS, clean-tech investing has got an L-curve for ‘lose,’ [CalPERS chief investment officer Joseph] Dear told the conference, the Sacramento Bee reported. “Our experience is that this has been a noble way to lose money. And we’re not here to lose money. We have dialed back.”

This is a significant reversal. Calpers has a history of making “noble” investments in “clean” companies dating back to the 90′s, and Governor Jerry Brown has only added fuel to the fire by pushing hard for more investment in green technology.

So while we’re happy to see Calpers back off, it’s coming years too late. Public employees and California governments have been paying into the system for decades, and taxpayers are going to have to foot the bill for the losses it has already incurred. Politicians and labor unions periodically raise the idea of using retirement funds to “invest” in “noble” goals. This is almost always a power grab aimed at steering funding to favored groups of political allies. Both voters and public union workers should sound the alarm when these ideas come up.

Retirement funds need to be managed prudently and conservatively. Investing in unicorn futures and leprechaun bonds is not the way to run an organization responsible for the retirement security of millions of people.

[Green tree pie chart image courtesy of Shutterstock.com]

Published on March 30, 2013 10:40 am