Key Takeaways
- • CalPERS announced a preliminary 11.6% investment return for fiscal year 2025 (ending June 30, 2025), exceeding its 6.8% target and marking the first time in three years the $584 billion pension fund has beaten its earnings benchmark.
- • The fund's private equity allocation has grown to $92 billion as CalPERS leadership pursues a higher-return strategy, with management maintaining that net returns remain positive even after accounting for private equity fees.
- • Board election candidates, including challenger Steve Mermell, are criticizing CalPERS' timing in promoting its investment returns via member communication during an active voting period for two board seats, arguing the messaging inappropriately influences the election.
- • The contested private equity strategy is a central flashpoint in CalPERS' September 2025 board election, with candidates split on whether elevated fees justify the pursuit of higher returns through alternative assets.
- • CalPERS' funded status improved to 79% following strong investment performance, though the $584 billion pension system remains technically underfunded relative to long-term liabilities to California's 2 million members.
Summary
CalPERS reported a preliminary net investment return of 11.6% for the 12-month period ending June 30, 2025, delivering returns that significantly exceed the fund's 6.8% actuarial target. This performance marks the first time in three years that the California Public Employees' Retirement System has beaten its earnings benchmark, driven by strength in equity markets and private equity investments. The strong fiscal year improved CalPERS' funded status to 79%, a material improvement from earlier 2025 levels when the $584 billion pension fund's assets had fallen to $508 billion in April.
The announcement, however, has triggered governance concerns amid an active board election. CalPERS sent a message to its 1.7 million voting members promoting the fund's investment returns during the August 28 through September 29 voting period for two board positions. Board election candidates, notably challenger Steve Mermell, formally objected to the timing, arguing that publicizing investment performance while members are actively voting on board seats risks the appearance of staff attempting to influence the election outcome rather than allowing members to decide independently.
The timing is particularly contentious because private equity strategy represents a central point of contention in this year's campaign. CalPERS has significantly increased its private equity allocation to $92 billion over recent years as part of a deliberate shift toward higher-returning assets. Fund leadership maintains the strategy is working, with management arguing that net returns remain positive even after subtracting private equity management fees. However, several board candidates are openly critical of the private equity allocation, citing elevated fees as a concern that outweighs return benefits.
The underlying strategic question—whether CalPERS should prioritize higher absolute returns through riskier alternative assets or maintain a more conservative posture—directly affects the fund's ability to meet its obligations to California government employees and retirees. CalPERS' governance structure includes a 13-member board where members elect representatives for six positions; the remaining seven seats are held by elected officials or gubernatorial appointees. This election cycle, with union-backed campaigns fueling engagement, represents a genuine ideological debate about investment philosophy and fiduciary responsibility.
The announcement, however, has triggered governance concerns amid an active board election. CalPERS sent a message to its 1.7 million voting members promoting the fund's investment returns during the August 28 through September 29 voting period for two board positions. Board election candidates, notably challenger Steve Mermell, formally objected to the timing, arguing that publicizing investment performance while members are actively voting on board seats risks the appearance of staff attempting to influence the election outcome rather than allowing members to decide independently.
The timing is particularly contentious because private equity strategy represents a central point of contention in this year's campaign. CalPERS has significantly increased its private equity allocation to $92 billion over recent years as part of a deliberate shift toward higher-returning assets. Fund leadership maintains the strategy is working, with management arguing that net returns remain positive even after subtracting private equity management fees. However, several board candidates are openly critical of the private equity allocation, citing elevated fees as a concern that outweighs return benefits.
The underlying strategic question—whether CalPERS should prioritize higher absolute returns through riskier alternative assets or maintain a more conservative posture—directly affects the fund's ability to meet its obligations to California government employees and retirees. CalPERS' governance structure includes a 13-member board where members elect representatives for six positions; the remaining seven seats are held by elected officials or gubernatorial appointees. This election cycle, with union-backed campaigns fueling engagement, represents a genuine ideological debate about investment philosophy and fiduciary responsibility.
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