Achieving Investment Excellence

Case Study—CalPERS¹

ONCE DAMAGE HAS BEEN DONE, IT IS VERY HARD TO REPAIR. POOR AND POLITICIZED GOVERNANCE FORMED THE BASIS FOR A HIGH PENSION PROMISE, WHICH COULD NOT BE SUSTAINED BY THE RETURNS FROM THE INVESTMENTS. A LACK OF HIGH QUALITY OVERSIGHT LED TO EXCESSIVELY HIGH COST, A POOR INVESTMENT PROCESS, AND AN INVESTMENT ORGANIZATION THAT WAS NOT FIT FOR THE COMPLEXITY OF THE STRATEGY, RESULTING IN DISASTROUS OUTCOMES DURING AND IN THE AFTERMATH OF THE FINANCIAL CRISIS OF 2008–2009. AFTER THE CRISIS, CHIEF EXECUTIVE OFFICER (CEO) ANNE STAUSBOLL AND CHIEF INVESTMENT OFFICER (CIO) JOE DEAR STARTED A RIGOROUS PROCESS TO STRENGTHEN THE STRATEGY AND THE QUALITY OF THE INVESTMENT MANAGEMENT ORGANIZATION

Background

The California Public Employees' Retirement System (CalPERS) is an American pension fund, founded in 1932 and located in California. The beneficiaries are Californian employees, retirees and their respective families. It is America's largest pension fund with approximately $347 billion² in assets under management in January 2018. The fund has a defined benefit character, and manages the pension, death and health benefits of around 1.8 million participants.³ In the past, CalPERS was considered a role model due to its transparent communication with its stakeholders, excellent returns⁴ and the so-called CalPERS effect, where CalPERS improved returns by focusing on the quality of governance of companies the fund invested in. After the strong 1990s on the financial markets, ...