CalPERS (California Public Employees' Retirement System)

CalPERS (an acronym for the California Public Employees' Retirement System) is the largest public pension fund in the United States. Think of it as a colossal savings and investment account for over two million Californian public servants, from firefighters to school administrators. Its primary job is to manage the retirement and health benefits for these members and their families. For investors, however, CalPERS is much more than just a state benefits administrator. With assets under management (AUM) hovering in the hundreds of billions of dollars, it is a true titan of the financial world. Its investment decisions are so significant they can influence stock prices, shape corporate behavior, and signal major trends across the global economy. When this giant makes a move, everyone from Wall Street analysts to Main Street investors pays close attention.

The sheer size of CalPERS gives it enormous influence, particularly in the realm of corporate governance. Imagine being such a large shareholder in a company that the CEO has to take your call. That's the reality for CalPERS. It holds substantial stakes in thousands of public companies worldwide and isn't shy about using its power as an owner to push for change. This practice is often referred to as shareholder activism. CalPERS has a long history of advocating for:

• Board Independence: Pushing for company boards that are not dominated by insiders and can provide genuine oversight.
• Executive Compensation: Challenging excessive CEO pay packages that aren't tied to long-term performance.
• Environmental, Social, and Governance (ESG) Issues: Encouraging companies to improve their environmental track record, enhance social policies, and operate more transparently.

Its famous “Focus List” publicly names and shames companies in its portfolio that it believes are underperforming due to poor governance, pressuring them to reform their ways. For the average investor, this is a powerful reminder that owning a stock means owning a piece of a business, and with that ownership comes the right to demand accountability.

Because it has to invest such vast sums of money for the long term, CalPERS conducts extensive research and develops sophisticated strategies. Consequently, its shifts in asset allocation are often viewed as a bellwether—an indicator of coming trends. When CalPERS decides to increase its investment in, say, private equity or infrastructure, other large institutions often follow suit. A typical CalPERS portfolio is a masterclass in diversification, spreading its bets across a wide range of asset classes, including:

• Public Equity (stocks)
• Fixed Income (bonds)
• Real Estate (commercial properties, land)
• Private Equity (investing in companies not listed on public stock exchanges)
• Infrastructure (toll roads, airports, utilities)

Watching how CalPERS adjusts its mix can give individual investors clues about which sectors the “smart money” is becoming more or less optimistic about for the long run.

For followers of value investing, CalPERS offers both a model to learn from and a cautionary tale.

The core mission of CalPERS is to pay pensions for decades to come, giving it an incredibly long investment horizon. This is a massive advantage and a principle that value investors should embrace. CalPERS can afford to ignore short-term market panic and “noise,” allowing it to buy assets when they are out of favor (and cheap) and hold them until their true value is recognized. It's the ultimate example of playing the long game. Furthermore, its focus on strong corporate governance aligns perfectly with the value investor's desire to own well-managed, durable businesses.

Despite its strengths, the story of CalPERS also contains important warnings:

• Size is an Anchor: Being a giant has its downsides. CalPERS has too much money to invest in small, nimble companies where explosive growth might be found. It must buy billions of dollars' worth of stock in mega-corporations, which makes it incredibly difficult to outperform the broad market. In many ways, it is the market.
• Politics and Complexity: As a public entity, CalPERS faces political pressures that can interfere with a pure, returns-focused investment strategy. This complexity is a burden that individual investors don't have to carry.
• Big Doesn't Always Mean Better: Perhaps the most humbling lesson is that despite all its resources, professional staff, and influence, CalPERS often struggles to achieve returns that beat a simple, low-cost S&P 500 index fund. It’s a powerful reminder that for the average investor, a straightforward, passive approach can often be more effective than trying to emulate the complex strategies of a financial giant.