Don't worry. When this volcano finally explodes, it'll be the fault of the 1 percent and the stock market. Not leftist politically correct investing.
The staff of the California Public Employees’ Retirement System had recommended that the system’s board approve ending restrictions on tobacco investments managed by its own staff. The ban began 16 years ago.
That restriction did not apply to CalPERS’ investment funds managed by outside firms. As of June 30, CalPERS’ retirement fund held $547 million of tobacco-related securities managed by outside investment firms, which are still authorized to invest in tobacco shares.
But in a 9-3 vote Monday, CalPERS’ board rejected its staff’s suggestion and extended the anti-tobacco restriction to its funds managed by outsiders.
Of course it did. Because CalPERS remains dedicated to putting politics ahead of financial viability.
“Economically I don't see how [tobacco] is sustainable as an industry down the road,” said state Controller Betty Yee, a CalPERS board member who introduced the motion to expand the ban. “As fiduciaries we need to make a decision, with respect to the options laid out before us, on an economic basis.”
You can laugh now.
I don't see how economically CalPERS is sustainable down the road.
The pension fund, with about $290 billion in total assets, already is struggling with poor returns on its overall holdings. In its fiscal year that ended June 30, CalPERS earned a return of less than 1%, its worst performance since 2009.
And actual money just might be needed...
The staff’s recommendation partly reflected “increasing demands on investment returns to fund benefits” for the system’s 1.8 million members and CalPERS’ “duties as fiduciaries,” CalPERS said in notes for Monday’s meeting.
Desperate for higher returns, CalPERS also bought the riskiest portions of collateralized-debt obligations, accumulating $140 million of them by 2007. These were the packages of debt, largely subprime mortgages, whose defaults helped trigger the 2008 financial meltdown. According to a 2007 story by Bloomberg News, CalPERS bought these investments, known as “toxic waste” on Wall Street, from Citigroup, one of the sinking firms that the government later bailed out.
CalPERS actuaries rely on earning a 7.5% annual return on investment to meet the current and future pension obligations to 1.8 million participants. But current stock market conditions make achieving that goal much harder — if not impossible — over the next several years. And that will leave taxpayers on the hook for billions.
7.5% or 1%. What's the difference?