CalPERS: The California Power Machine Controlling $600 Billion in Capital

CalPERS is not best understood as a founder-led organization. It is a large institutional construct. Treating it like a person leads to analytical mistakes; treating it as a public financial infrastructure authorized by law, constrained by fiduciary duty, funded by capital-market returns, and able to influence California budgets and U.S. corporate governance is much more accurate. At present, it serves nearly 2.4 million retirement-system members, more than 1.5 million health-program participants, contracts with 2,906 employers, and reported about $563 billion in assets with a 79% funded status at the end of fiscal year 2024-25. In 2026 board communications, it is also commonly described as an approximately $600 billion fund.

Its “background” is legislative and fiscal, not familial. Public materials show that CalPERS was created by legislation in 1931 and became operational in 1932 as the State Employees’ Retirement System; in 1939 it expanded to local public agencies and classified school employees; in 1962 it began administering health benefits for state employees, and a few years later local agencies joined the health program as well. That path matters because CalPERS did not remain a narrow state pension office. It evolved into a broad platform spanning the state, schools, local governments, and health-benefit purchasing.

Its deepest institutional DNA was entrenched by Proposition 162 in 1992. Article XVI, Section 17 of the California Constitution gives public pension boards sole and exclusive fiduciary responsibility over assets and sole and exclusive responsibility to administer the system, while requiring trustees to act solely in the interest of participants and beneficiaries. California’s Legislative Analyst’s Office has explained that a core purpose of Proposition 162 was to prevent political “raids” on pension assets and to preserve board independence. That means CalPERS is not simply a state cash pool; it is a trust-like public capital institution with constitutionally protected autonomy.

That legal structure drives its governance model. CalPERS has a 13-member board made up of elected, appointed, and ex officio members. The board oversees roughly a $600 billion pension fund and health-care delivery for more than 1.5 million people, and it approves the overall investment approach, hires the chief executive officer, and sets the discount rate. The discount rate is not a minor technical variable; it directly affects employer and employee contributions. In practice, the board functions both like a corporate board and like a public risk-pricing authority.

Today, CalPERS operates at the scale of a major public administrative machine. In 2026, Theresa Taylor was re-elected board president and David Miller vice president. The executive team includes CEO Marcie Frost and CIO Stephen Gilmore. Budget-wise, CalPERS approved a 2024-25 budget of $2.47 billion with 2,843 positions, and then proposed $2.74 billion for 2025-26. That tells you this is not a small investment office. It is a full-scale system that simultaneously runs pensions, health programs, global investments, compliance, and member services.

Its most important “brands” are really institutional platforms. The central digital platform is myCalPERS. Official material says it launched in 2011 and replaced more than 49 legacy systems and 60 support systems. For an organization like this, platforms are not optional tools; they are the pipes through which retirement applications, health selections, employer reporting, member communication, and data retention all flow. CalPERS also operates PERSpective, the CalPERS 457 Plan, and the prefunding trust structures CEPPT and CERBT. The true assets here are systems that accumulate data, process, and long-term relationships; the influence assets are the media, education, and policy channels that shape member understanding and public narratives.

CEPPT and CERBT show how CalPERS expands its reach. CEPPT helps public employers prefund future pension contributions. CERBT helps them prefund retiree-benefit liabilities, especially OPEB. These are not side businesses in the usual commercial sense. They extend CalPERS from “managing pension promises for members” into “helping employers manage long-duration liabilities.” Its network effects therefore come not only from members, but also from employers’ ongoing dependence on CalPERS for actuarial, trust, investment, and compliance infrastructure.

On the member side, CalPERS does not offer only a defined benefit pension. Official materials describe the CalPERS 457 Plan as a voluntary deferred-compensation savings vehicle that allows public employees to save through payroll deduction on a pretax or Roth basis. CalPERS also frames deferred-compensation plans as supplemental income alongside the pension. In practical terms, its model is not about earning profits from members; it is about integrating pensions, health benefits, and supplemental savings into a single ecosystem that deepens member retention, employer stickiness, and administrative scale. That is increasingly important for newer PEPRA members with leaner retirement formulas.

Its resource network also includes the health-benefit supply chain. CalPERS is not only the largest public pension fund in the United States; it is also the largest purchaser of public employee health benefits in California and the second largest public purchaser in the nation after the federal government. In its 2026 New Year communication, it disclosed that its CVS Caremark pharmacy-benefit contract put up to $250 million at risk based on performance and cost targets. So CalPERS’ network is not limited to GPs, banks, consultants, and public companies; it also includes health plans, pharmacy-benefit managers, care networks, and public-employer HR systems.

CalPERS’ “revenue model” is fundamentally different from that of an ordinary asset manager. It does not live on management fees and carried interest. It lives on investment earnings, employer contributions, and employee contributions that together support benefit payments. Under the official “Pension Buck” framing, 66 cents of every public pension dollar comes from CalPERS investment earnings and member contributions. Member-facing guidance likewise says the plan is primarily funded by employee and employer contributions plus investment earnings. In other words, CalPERS converts institutional scale, long liability duration, and capital-allocation capability into payment capacity.

In investment philosophy, CalPERS sees itself as a long-term investor, not a quarterly trading book. Official disclosures show a 6.8% long-term assumed rate of return, an 11.6% net return for fiscal year 2024-25, a 1.7 percentage-point beat over benchmark, and a 30-year annualized average return of about 7.6%. The objective function is clear: not the maximum possible return in every period, but sufficient long-term return at tolerable risk so pension promises can be paid. That is why every argument about private equity, ESG, or asset allocation ultimately comes back to a single question: does it improve funded status and stabilize future contribution requirements within a fiduciary framework?

The most consequential recent allocation shift has been toward private markets. In 2024, CalPERS approved increasing total private-market exposure from 33% to 40% of plan assets, raising private equity from 13% to 17% and private debt from 5% to 8%. This was not merely trend-following. Management was effectively stating that private markets offer stronger long-term return potential than some public-market exposures and that the fund must seek higher returns to narrow its funding gap. To outsiders, this looks like added risk. To CalPERS, it is a deliberate return-seeking move under fiduciary pressure.

Private equity has become CalPERS’ brightest and most contested growth engine. In its 2025 review, CalPERS reported a preliminary 14.3% private-equity return for fiscal year 2024-25 and said the portfolio was worth nearly $100 billion. It also described its more recent strategy as involving more direct investment into companies, more co-investment, and less intermediation, crediting those changes with cutting management fees by about 10% over recent years. CalPERS further said private equity has been one of its best-performing asset classes over the past 20 years and that its program ranked best among peers in calendar year 2024. The underlying logic is that CalPERS wants to turn scale into bargaining power, using its size to obtain better terms, more direct access, and lower fees.

CalPERS is not just pursuing higher-return alternatives. It is also trying to integrate sustainable investing, corporate governance, and diverse-manager development into a long-term value-creation framework. Officially, CalPERS launched its Climate Action Plan in 2023 with a goal of investing $100 billion in climate solutions by 2030; by June 30, 2025, it said the figure had grown to nearly $60 billion. At the same time, its Emerging & Diverse Manager Program has existed for more than 30 years. This is not a superficial ESG label. It is an attempt to embed climate risk, governance quality, and manager diversity into portfolio construction and risk management. Whether one agrees with that or not, it shows that CalPERS believes long-term returns depend on more than rates and earnings alone.

That is also why CalPERS continues to matter as a governance signal-sender. Official historical material says it helped establish the Council of Institutional Investors in 1985 and launched the Focus List in 1987. Academic literature helped shape the idea of a “CalPERS effect.” Some studies found that companies placed on the Focus List experienced significant positive excess returns after publication; others were more cautious and suggested the effect was strongest in the Dale Hanson era and less stable later. The most defensible conclusion is not that CalPERS can always fix companies, but that it helped move public pension funds from passive owners to active participants in U.S. corporate governance.

The first major turning point was SB 400 in 1999. The law increased pension benefits for multiple groups and provided ad hoc increases for certain retirees; the best-known element was the spread of more generous public-safety formulas. When California’s Legislative Analyst’s Office looked back in 2010, it said annual state pension costs had risen from about $140 million in 1999-00 to $3.8 billion in 2010-11, driven by weak investment returns, demographic changes, and increased benefits. So it is not correct to blame every later stress entirely on SB 400, but it is completely fair to treat SB 400 as one of the most consequential expansion decisions in CalPERS history.

The second turning point was the long repair period after the 2008 financial crisis. In 2025, CalPERS itself acknowledged that it spent an extended period in the 60%-70% funded-status range after the global financial crisis, and only reached 79% by the end of fiscal year 2024-25, up from 73.9% in the prior year and roughly 71% the year before that. This period shaped almost everything that followed: higher employer contributions, lower return assumptions, PEPRA reforms, greater private-market exposure, and eventually the shift to total-portfolio thinking.

The third turning point was PEPRA, which took effect in 2013. CalPERS describes PEPRA as a package that reduced pension formulas, increased retirement ages, capped pensionable compensation, and required more equal sharing of contribution rates. Its importance lies not in fixing legacy liabilities, but in changing how future liabilities would be generated for new members. It shifted some pressure away from the investment portfolio by slowing the growth of promised benefits at the source.

The fourth turning point was the 2025 adoption of the Total Portfolio Approach. Officially, CalPERS described itself as the first major U.S. public pension fund to adopt TPA. The Financial Times provided the structural significance: CalPERS replaced 11 asset-class benchmarks with a single reference portfolio, increased its equity target from 72% to 75%, and set a 400-basis-point active-risk limit. FT also noted that this change followed a decade in which CalPERS’ average annual return was 7.1%, below the 7.4% national average. TPA therefore was not branding. It was a governance and investment overhaul that acknowledged the old model had limitations.

The fifth turning point was CalPERS’ increasingly explicit claim that it is part of California’s broader economic architecture. Its recent reports say that 2022 pension spending generated $30.2 billion in economic activity, supported roughly 140,000 jobs, and produced $1.4 billion in tax revenue. Separate reporting says that as of June 30, 2024, its investments in companies doing business in California were worth $78.7 billion and generated $45.9 billion in economic activity while supporting 173,608 jobs. Those numbers are not just public-relations talking points. They are part of CalPERS’ argument that its investment choices are not isolated fund matters, but part of California’s economic geography.

The best-known institutional scandal in CalPERS history is the placement-agent corruption case. In 2009, Reuters reported that CalPERS disclosed that a placement-agent firm led by a former board member had earned more than $58 million in fees for representing investment firms to the fund. In 2013, the SEC alleged that former CEO Federico Buenrostro and Alfred Villalobos fabricated or bypassed disclosure procedures to induce Apollo to pay placement-agent fees. In 2014, federal prosecutors brought bribery-related charges connected to the same broader episode. California later enacted AB 1743 imposing stricter registration and compensation rules on placement agents dealing with state pension systems, and CalPERS itself moved toward stronger governance reforms and disclosures. The significance of the case was not just the money. It showed how a fiduciary institution could be penetrated by intermediary networks.

A second long-running reputational drag has been the long-term care program. CalMatters reported that CalPERS prepared to pay roughly $800 million to settle claims that it misled retirees when it marketed long-term care insurance in the late 1990s and suggested certain policies would not face major rate hikes. CalPERS’ 2025 long-term-care valuation report states that the fund absorbed the class-action settlement cost in fiscal year 2023-24, that the long-term care fund balance was about $4.3 billion as of June 30, 2024, and that around 15,300 policyholders elected settlement-related options. The deeper issue was not only the payout. It was that a public institution made a serious long-duration liability-pricing mistake and then had to manage the fallout over many years.

A third category of controversy lies at the intersection of divestment and fiduciary duty, and CalPERS gets criticized from both directions. Tobacco is the clearest case. CalPERS’ 2020 divestment analysis put the present-value loss from the active divestment program since inception at $2.18 billion, while a 2021 board discussion referenced about $3.6 billion in tobacco-related lost gains alone. In other words, public figures differ depending on methodology and time period. Even so, CalPERS maintained and expanded the tobacco ban. On fossil fuels, CalPERS formally opposed SB 252, which would have required fossil-fuel divestment, while simultaneously advancing a $100 billion climate plan and taking a hard line against Exxon’s lawsuit against climate-focused shareholders. In 2026, it also opposed SB 1319, arguing that stronger private-market disclosure rules would harm its access to top-tier opportunities. The core controversy around CalPERS is therefore not one scandal, but its permanent position at the intersection of moral divestment demands, political directives, fiduciary constraints, return maximization, and transparency disputes.

A fourth line of criticism concerns optics and governance: executive pay, private-equity transparency, and strategic risk. CalPERS’ transparency page lists Marcie Frost’s publicly posted compensation at $601,398, while CalMatters reported that a 2024 board-awarded bonus of $667,320 pushed her total compensation above $1.2 million. Those debates do not necessarily alter solvency, but they amplify a broader critique: when a public institution asks employers and taxpayers to bear higher long-term costs while shifting more capital into harder-to-value and harder-to-monitor private assets, outsiders will demand more visibility into fees, valuations, and internal incentives. That is one reason CalPERS faces pressure from the right over ESG and from the left over insufficient divestment and private-market opacity.

As of 2026, CalPERS’ real-world position can be summarized in five ways. It remains the largest public pension fund in the United States and the central public buyer in California’s employee-health ecosystem. It is still not fully funded, but it has clearly improved from its post-crisis lows and has posted strong returns in the last two fiscal years. It continues to operate through a strong board-centered governance model and is reshaping itself through board elections, discount-rate decisions, and TPA implementation. In the market, it still has real spillover power, whether in Disney’s board fight, Tesla pay votes, or Exxon shareholder-rights disputes. And in the broadest sense, CalPERS is not merely a pension fund. It is a standing intersection of California’s public-employment contract, state and local budget pressure, American institutional-investor governance traditions, and global long-term capital-allocation debates.