CalPERS board candidates talk divestment, cryptocurrency and private equity

Six candidates vying for one of two board seats on the country’s largest pension system outlined their visions for the California Public Employees’ Retirement System during the election’s only forum on Wednesday.

Challengers argued that CalPERS’ Board of Administration lacks leadership, which has left the pension system with less than 80% of the money to cover its financial obligations.

Meanwhile, the two incumbents, David Miller and Jose Luis Pacheco, emphasized how CalPERS has made progress in recent years by managing ever-rising healthcare costs and building a strong investment team that had produced consistently good returns.

Questions posed to the six candidates ranged from whether cryptocurrencies had a place in CalPERS’ investment portfolio to their stance on divesting from Tesla, which some members have called for in light of CEO Elon Musk’s recent political activity.

CalPERS’ 13-person board oversees a more than $500 billion investment portfolio and health benefits for over 1.5 million retirees, public employees and their families. Six of those seats are elected positions, which various groups of CalPERS members vote for.

Any CalPERS member can vote for the two at-large positions in the ongoing election. Members can vote by mail, phone or online.

During the 90-minute forum, the candidates tackled a range of topics.

Healthcare

When asked about CalPERS’ role in improving access to healthcare, nearly all the candidates agreed that the massive retirement system needed to use its heft to secure better deals with insurance companies and providers.

“CalPERS has a lot of leverage that they can use to preserve important benefits while also limiting cost increases,” Troy Johnson, one of the candidates for position B, said Wednesday.

Johnson said the retirement system should use its purchasing power to impose financial penalties against healthcare companies when premium rates increase beyond what’s expected.

His opponent, Pacheco, echoed the sentiment that CalPERS should use its size to decrease healthcare costs. He pointed to two deals CalPERS made with CVS Caremark and Blue Shield while he was on the board, which include financial incentives for the companies to prevent spiking costs.

Divestment

CalPERS has faced continued calls from the public to divest from a range of industries and companies, which members say are misaligned with their values and present investment risks.

None of the candidates outright endorsed calls to divest from fossil fuels or Tesla. Instead, they emphasized as board members their primary responsibility would be to ensure retirees receive the benefits promised to them.

“Our perspective has to be completely independent of politics,” Miller said. “We need to look at it through the lens of risk.”

Miller noted that issues central to calls for divestment, such as climate change and good governance, are risk factors that the pension system needs to consider when making investments.

“It was a great investment years ago, I’m not so sure now,” Steve Mermell, one of Miller’s opponents, said. Mermell said he would support CalPERS staff researching whether Tesla will remain a viable investment in the future.

Dominick Bei, another Miller challenger, said that asking CalPERS staff to do a singular analysis of Tesla sends the message that the board is either listening to a vocal group or doesn’t trust the investment team to make decisions.

Miller additionally pushed back on the idea that the board makes granular investment decisions such as selling stock in one particular company.

Public equity

The board has come under scrutiny from members and various groups about CalPERS’ private equity investments. Earlier this year, one retiree group announced an effort to fund an independent audit of CalPERS, in part, over the lack of transparency around private equity and the fees paid to brokers.

Mermell said it was important to understand why some private equity brokers were receiving large fees.

“Are these investments being made to make people rich, or to further the fund?” Mermell asked.

As the incumbent in his race, Miller was stuck defending the board against the critiques of CalPERS’ use of private equity and its opaque nature. He said the retirement system has made progress on improving transparency by providing the public with more materials ahead of board meetings.

Pacheco, the other candidate hoping to defend his seat, said he would push for more timely release of meeting materials to improve transparency.

On the topic of CalPERS’ funded status, Pacheco said CalPERS’ unfunded status was one of the retirement system’s greatest challenges. He argued for a need to maintain realistic investment projections and continue diversifying the portfolio to maximize long-term gains.

One of his opponents, Johnson, said it was important to hire and retain the best investment staff in order to keep moving CalPERS to a fully funded status.

Sam Hasan Akkad, one of the candidates hoping to unseat Pacheco, said CalPERS needs to be ready for economic changes and continue improving transparency as means to grow the fund.

Cryptocurrency

Candidates were asked if Bitcoin and other cryptocurrencies had a place in CalPERS investment portfolio.

Most argued cryptocurrencies were too speculative for a long-term investor such as CalPERS. They suggested that efforts to incorporate cryptocurrencies into the retirement system’s portfolio would endanger the funded status of the pension system.

Bei, who is the founder of a nonprofit that aims to educate people on Bitcoin, did not advocate for CalPERS to directly invest in cryptocurrencies during the forum. He did note that the pension system already owns assets in Bitcoin-holding companies, such as MicroStrategy, which has provided significant returns in recent years.

In response, Miller said that those who are worried about the lack of transparency around private equity assets should be even more concerned about the prospect of direct investment in cryptocurrency.