California Pensions: Private Assets, Public Losses

And are those losses even really helping the climate?

Oct 30, 2025

This is not a new problem.

28 Oct 2025, The Center Square: CA state retirement fund lost 71% of $468M put in clean energy, won’t say how

The California Public Employees’ Retirement System for state employees lost 71% of its $468 million investment in a clean energy and technology private equity fund, state records show, but CalPERS won’t explain how.
These losses are a major problem for California taxpayers, who at least for now are the backstop for underfunded state pensions, but also for state employees who trust CalPERS to responsibly manage their retirement plans.
….
CalPERS committed $465 million to the private equity CalPERS Clean Energy & Technology Fund (CETF) in 2007, ultimately paying in $468,423,814.
Since then, the cash out and remaining investment value of the investment fund has declined to $138,045,373, as of March 31,2025.
That’s a loss of 71%, or more than $330 million, for which private equity firms were paid at least $22 million in fees and costs.

Let’s focus on the official comments from CalPERS.

The Center Square filed a public records request seeking more details into the fund’s losses, including management contracts with the firms investing CalPERS’ money, and the investments made with CalPERS funding by those firms. CalPERS declined to release the information, aside from sharing already-public records, citing a state law exempting many records for alternative investments — such as private equity — from many public disclosure requirements.

Yep, that’s part of the nature of investing in private assets.

Let’s do a compare and contrast.

On the nature of “public” vs. “private” assets

(Note: the following is VERY BROAD, I am not a securities lawyer, yadda yadda.)

That is the nature of “private assets”, whether equity, “credit” - that is, debt instruments, or other types of private investments. They’re not registered with the SEC and do not need to make all sorts of required, standardized public documentation.

The purpose of the public standardized documentation for publicly-traded assets is for the protection of various types of investors. If the entities issuing the equity or debt (or other stuff) that is publicly traded break the rules, there can be all sorts of investor lawsuits or SEC penalties.

For private assets, there can still be legal repercussions, though it’s generally lawsuits between the parties. It usually often come to that - it’s mostly stuff being worked out privately between parties. That’s the nature of the beast.

I don’t want to turn this into a seminar on investing (PAY ME), but the allure for both the “capital providers” (aka investors) and those seeking capital (i.e. the companies/municipalities/etc. issuing debt or equity) is to reduce the amount of friction that comes from dealing with the SEC and exchanges that have so many requirements… and those arenas tend to require a certain size of deal. If your needs are far smaller, the public bond/stock market is not going to work well, because the transaction costs are too high to make it work.

You’d rather deal with the investors directly, and the investors would rather roll their own terms for guarantees and covenants.

That’s for those who are investing their own money, and there are private equity/credit groups of specialists who use their own money. I have seen that work very well for wealth growth for certain types of people - and this is what they do for themselves with their own money. It’s involved, as they have to deal with management directly, and are looking at non-standard financial presentations.

But…. sometimes they manage money for other people or institutions.

This is where the trouble can begin.

Principal-Agent Problems All the Way Down

I have written and spoken about the core principal-agent problem in asset management many times before, especially in the context of public pension assets.

Principal-agent problem: (source: EBSCO)

The principal–agent problem, also known as the agency dilemma, occurs when there is a conflict of interest between two parties in a relationship: the principal, who delegates authority, and the agent, who acts on behalf of the principal. This scenario is common in various settings, including businesses, where shareholders (principals) may have different incentives than company managers (agents).

The elements involved in making it a true principal-agent problem:

Asymmetric information: generally, the agent (or potential agents) has more/better information than the principal
- This can lead to moral hazard, which means that the agent will act/not act in ways that can lead to negative consequences to the principal, as the principal has less-than-effective oversight of the agent
- Adverse selection: the wrong types of agents are more attracted to the position - dishonest/fraudulent/riskier (etc.) are more likely to take on the job than agents who would fulfill the role better for the principal
Misaligned incentives: The agent has different incentives/goals than the principal

When the principal can have good oversight of the situation, that reduces the potential of a bad principal-agent problem.

I have questioned the ability of public pension trustees to deal with private assets. Public pension investments have reached a complexity level, that even if the private information is put before the board of trustees, I wonder if they could understand whether they were being taken for a ride with private assets.

I have written/spoken about the principal-agent problem multiple times before. Here is a selection of such posts:

Aug 2017: Public Pension Assets: It’s Not Your Money to Play With, Pension Trustees
Aug 2022: Podcast: Public Pensions, ESG, DeSantis, and The Catholic Church
Jun 2023: Other People’s Money: ESG, Public Pensions, and the Principal-Agent Problem
Jan 2024: ESG and Public Pensions: What’s the Fiduciary Duty When The Money Runs Out?
Nov 2022: ESG and ERISA: Pity the Poor Tort Lawyers Their Lost Business as Biden Gives a Safe Harbor For Now
Feb 2025: Podcast: ESG and anti-ESG v. Fiduciary Duty

Notice how often you see “ESG”, that is, “Environmental, Social, and Governance”, above?

That’s because the “goals” of the CalPERS money managers may not be appropriate asset-liability management for the pensions, investment returns, and all the things one expects from a fiduciary… but political goals, like looking like a good environmentalist.

Nobly Losing Money? Or Something Else…

March 2013, Free Beacon: Nobly Losing Money

A top official with California’s public employee pension system admitted this week that its holdings in green energy companies have lost hundreds of millions of dollars.
Joseph Dear, the chief investment officer of the California Public Employees’ Retirement System (CalPERS), called its green energy investments “a noble way to lose money.”
The admission came shortly after CalPERS officials voted to divest from high-performing investments in companies that manufacture firearms, fueling criticism that the organization’s investment decisions are based on political factors, rather than a determination to maximize returns.
According to Dear, CalPERS’ $900 million green energy investment fund has produced an annualized return of negative 9.7 percent.
“We’re all familiar with the J-curve in private equity,” Dear said at the Wall Street Journal’s ECO:nomics conference this week. “Well, for CalPERS, clean-tech investing has got an L-curve for ‘lose.’”
“Our experience is this has been a noble way to lose money,” Dear said. But he added that CalPERS would dial back its green energy holdings given the extensive losses it has produced for California’s public sector retirees.

Let me be fair and provide a fuller context for the remarks.

March 2013, WSJ: Losing With Clean Tech [emphasis added]

Joseph Dear is chief investment officer of California Public Employees’ Retirement System, the big public pension fund. According to Mr. Dear, a Calpers fund devoted to clean energy and technology which started in 2007 with $460 million has an annualized return of minus 9.7% to date. Here are excerpts of his remarks on Calpers’ experience
On Calpers’ investment in clean technology
We have almost $900 million in investment expressly aimed at 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.” Our experience is this has been a noble way to lose money. And we’re not here to lose money.
We have dialed back. I think there’ll be another run at it [clean energy]. Maybe we’ll be wiser.
One of the things that an institutional investor like Calpers can do is take an illiquidity risk and get paid for it. But if it takes 12 years to get the money out, the internal rate of return is not going to be very good, even if the investment is reasonably successful.

There is also a video at the WSJ link.

And there was even more missing context.

Dear was being dismissive when he said, “…a noble way to lose money.” He wasn’t the person who actually set up the clean tech fund for CalPERS - it was a predecessor at CalPERS. It was easy for him to be dismissive because he didn’t make the initial decision. The way many of these funds are set up, Dear would not be able to remove CalPERS funds until many years after the initial investment — that’s how these private assets work.

In the video, which is edited, one can see Dear making more extensive remarks about the dependency of the investment decision based on the tax treatment (does it make sense for public pension funds, which are tax-exempt, to invest in areas receiving special tax exemptions? Wouldn’t that be attracting heavier-taxed investors who might want the advantage?) and how much the specific tech is dependent on government subsidy and infrastructure.

He also mentioned the target 7.5% return overall… and that looking for a 6% return from a do-good investment fund was also not going to do it for him.

He remarked that the investments hadn’t panned out, and while not being explicit, he was being fairly critical about some decisions involved.

So his remarks were not necessarily as advertised.

Somebody was trying to be noble in setting up these investments, perhaps. It doesn’t sound like it was Joseph Dear.

“Maybe we’ll be wiser.”

Maybe they weren’t. Maybe they were.

Losing money in investments does happen, even with a wise approach.

I’ll note that Edward Siedle has turned his attention to CalPERS’s private investments, and doing his usual: [all the below are his posts]

15 Sep 2025: Public Pensions Need Independent Inspectors General Says WSJ: CalPERS Retiree Concerns Cited (WSJ didn’t say this, a person writing an op-ed in the WSJ did.)
30 Sept 2025: FBI, SEC, Whistleblowers Invited To Join CalPERS Investigation
23 Oct 2025: CalPERS Wants You To Believe “Private Equity Is Important to Your Pension”
24 Oct 2025: Graduate Business Students Invited to Join the Largest Pension Forensic Investigation in History: CalPERS

Unlike Siedle, I don’t have any issue with private assets per se. They have lots of pros and cons for institutional investors as well as particular kinds of specialists who are investing for themselves.

Yes, asset management involving private assets is going to involve more complicated fee structures and higher fees. There can be a question as to whether, ultimately, the net investment returns over the investment horizon are superior to an index fund.

You can’t randomly pick any private equity or credit investment and expect it to overperform. You have to do due diligence (some of that extra expense in investment compared to an index fund.)

But let’s see what CalPERS has to say:

“1 month ago” (why they can’t have real dates attached to their “news” items…. well, that inspires confidence, CalPERS.), PERSpective: CalPERS Now: Why Private Equity is Important to Your Pension

Earlier this year, CalPERS reported a preliminary 11.6% return on our investments for fiscal year 2024-25. This strong result – the best in the last four fiscal years – was driven largely by the strength of our private equity investments.
….
For the past five years, our private equity program has ranked as the best-performing among its peers, based on an analysis by Wilshire Associates, the independent investment consultant to the CalPERS board. We also achieved significant cost-savings through co-investments and customized investment vehicles. These investments are made alongside our investment partners instead of through traditional funds and come with lower fees and more control. These account for about 60% of our investments since 2022.

UH.

Do they mean 60% of their private assets are through co-investments/customized investment vehicles since 2022… or that 60% of all their newly-acquired investments since 2022 are private assets through co-investments/customized investment vehicles?

Because… big uh on that second one.

I mean, sure, portfolio turnover and all that but… uh.

What about transparency?
We understand that some members have questions about private equity because these companies don’t report as much information publicly as those listed on exchanges. That’s why we’re committed to transparency. The private equity firms CalPERS is invested in are listed on our website, so you can see where we’re putting your money to work. We list the amount that we have committed to our partners, how much we’ve invested, and the performance of each private equity fund quarterly. Annually, we disclose fees and profit sharing paid to our managers – commonly known as “carry,” a share of profits meant to incentivize better performance.
We also provide regular updates to the CalPERS board who have a fiduciary duty to ensure we are making the most prudent investments we can. What we don’t do is detail the individual companies in which the private equity funds have invested, which is exempt from disclosure under California law. Doing so would hurt our competitiveness and make it harder for us to get the best deals for our members.

Public information available on private assets from CalPERS

This is what they consider transparency.

Private Equity Program Fund Performance Review, which defaults to showing you the first 10 fund names when you go there.

I asked to expand to all available on one page — currently has 432 funds listed.

The top of the table looks like this:

You’ll see that a few of the funds have a different color on their names — those are links. That’s because they’re funds of funds. I clicked on the first 57 Stars one on the list (vintage 2009):

Also, just the top of the table. There are 45 total funds in this fund-of-funds. I mean, I suppose you have some information here, but it’s bare bones.

The Private Debt table is scantier, because it’s an even newer program (they don’t start giving IRRs until there is enough time to develop):

So, you’ve got an idea of the private asset management firms involved, and if you’re knowledgeable, you may be able to know what the specific funds are geared towards. But these are not offered publicly.

But you can see how people can cherry-pick individual fund performance out of these tables. You can sort by the net IRR (if it exists), see if there are any big stinkers, and ask “What’s up with that?”

[By the way, I just did this, and noticed it sorts the net IRR … in ABC order, not numerically.]

Let’s find that CalPERS Clean Energy Fund…

Guys… this was implemented in 2007, and I believe this is the stinker fund Joseph Dear was talking about in 2013.

This gives you an idea of how long you can be stuck with a crap investment in private equity. You commit to a long-term investment, and that’s it. You’re still dealing with the crap 18 years later.

In public equity, you can exit the position any time you want. That has repercussions, but liquidity can be helpful sometimes.

Comments on Private Asset Fees

Let’s see what they’re claiming about fees:

Okay, so the return was 14.3% net of fees. That was a good year.

What does this look like in a bad year? I assume there’s no profit sharing (or is that not the case?) — but often the asset management fees would still be paid.

So if the asset management fees are higher than for public assets, it can be in a good year, they have a very good year, but in a bad year, it’s even worse because they’re having to pay higher fees for that worse performance.

Edward Siedle has already done the math:

The article gives superficial treatment to fees, but doesn’t explore how they erode returns. CalPERS fails to mention that private equity fees are astronomically greater (600xs) than traditional public equity investments. Further, since annual fees compound (and fees paid reduce the capital that can compound), even modest extra fees can meaningfully erode long-term returns. The SEC warns investors that “fees aren’t just one‐time deductions—they compound.”
In the chart above where CalPERS compares private equity value added vs. fees and profit sharing, total fees disclosed to the public are $1.14 billion on $92 billion in assets, or 124 bps. CalPERS does not disclose that the private equity all-in fees (including, but not limited to, management and performance fees, fund level expenses, portfolio company monitoring and transaction fees, transaction costs and financing expenses, fund of funds or secondary investment fees, and organizational and setup costs) are exponentially greater—often in excess of 6 percent.

Again, private assets qua private assets are not necessarily problematic, but once one adds on a bunch of principal-agent problems:

Underreporting private equity fees is clearly beneficial to the pension and its investment staff (who often receive bonuses or career advancement tied to reported performance metrics). By keeping total fees understated or fragmented across line items, CalPERS can avoid headlines about “billions paid to Wall Street.”
Private equity managers benefit because large reported fees invite public and legislative backlash. Indeed, the mutual incentive to underreport or obscure fees lies at the center of the transparency and accountability problem in public pension private equity programs. Both sides—public pensions and private equity managers—can benefit, at least in the short term, from downplaying the real costs. Not surprising, the fee disclosure is grossly incomplete and misleading to stakeholders and investors globally.

Siedle goes onto mention the push to get private assets into retail accounts, 401(k)s and similar individual accounts where the individual investor can less ably absorb the risks and costs of private assets. Institutional investors that have the scale and expertise can more easily absorb these.

One Year Ago: CalPERS $100 Billion Climate Action Plan

Posted September 2024:

Excerpt:

We will more than double our investments in climate solutions over the next seven years.
Those investments will help cut in half the climate impact of our portfolio.
The hundred billion dollars plan will focus on three main areas of investment.
First, we’ll invest in mitigation. These are strategies that reduce greenhouse gases, such as renewable energy, carbon capture, and waste management.
We’ll invest in adaptation. These are strategies designed to manage water supply, rethink agriculture, and prepare for natural disasters.
And finally, CalPERS will invest in transition. These are strategies designed to incentivize high emitters to develop more climate friendly operations.
The CalPERS Climate Action Plan cannot only deliver for the environment, but also for our bottom line as we strive to become the global partner of choice in sustainable investing.

The page for the plan is here: $100 Billion Climate Action Plan

I go back to what Joseph Dear was saying in 2013: he pointed out that many of the “clean tech” that they were targeting then required ongoing explicit government subsidies (not just tax breaks) to keep going at that time.

The three areas mentioned by Peter Cashion, Managing Investment Director for Sustainable Investments for CalPERS, all sound very nice. But they’re not necessarily going to give you huge ROI, whether you’re using equity or debt, public or private. … unless you’ve got government subsidies for it.

[staring at the Trump administration for a moment]

We need to think in terms of investment horizon. Maybe wait for more amenable partners in government and good government types…

28 Oct 2025, CNBC: Bill Gates softens ‘Climate Disaster’ approach, says strategy needs to shift: Interview

Microsoft co-founder Bill Gates, who wrote a book in 2021 titled, “How to Avoid a Climate Disaster,” now says leaders need to shift their approach to climate change.
In a letter published Tuesday ahead of next week’s COP30 U.N. climate summit, Gates argued that too many resources are focused on emissions and the environment, and that more money should go toward “improving lives” and curbing disease and poverty.
“Climate is super important but has to be considered in terms of overall human welfare,” Gates told CNBC’s Andrew Ross Sorkin in an exclusive interview. “I didn’t pick that position because everybody agrees with it – it’s I think intellectually the right answer.”
….
Breakthrough Energy, Gates’ climate-focused investment fund, reportedly cut dozens of staffers earlier this year. The New York Times reported in March that the “change shows how Mr. Gates is retooling his empire for the Trump era.”

Uh, okay then.

Just saying, perhaps diversify one’s investment themes, okay?

If you divest from all but a few favored areas… there may be problems.

And just an FYI, from CalPERS’s last financials, they had about $550 billion in investments (fair value) at the end of FY2024. If you want to think about how substantial $100 billion is.

Selected Posts on Public Pensions in Alternative Assets

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