Amara Maple
A recent, unprecedented forensic report, commissioned by the Retired Public Employees’ Association of California (RPEA), has cast a harsh spotlight on the California Public Employees’ Retirement System (CalPERS), the nation’s largest public pension fund with assets totaling $630 billion. The findings, detailed in a historic crowdfunded investigation led by renowned whistleblower lawyer Edward Siedle, paint a picture of systemic governance failures, chronic underperformance, and a pervasive lack of transparency, juxtaposed against a backdrop of exorbitant executive compensation. The report asserts that CalPERS, far from being a model for public pensions, operates with "bottom-tier performance" while its leadership enjoys "top-tier compensation," raising serious questions about its fiduciary discipline and accountability to its millions of beneficiaries.
The Stark Reality: Underperformance and Excessive Payouts
The core accusation leveled against CalPERS is a profound disconnect between the fund’s operational efficiency and its executive remuneration. The report meticulously details that CalPERS’ return on investment places it in the bottom 15 percent among 230 U.S. public pension funds. This dismal performance record stands in stark contrast to the compensation packages afforded to its top executives. The investigation revealed that four CalPERS executives earn more than $1 million annually, another four exceed $900,000, and an additional 26 individuals command salaries ranging between $500,000 and $900,000. To put these figures into perspective, these make them some of the highest-paid government officials in California, significantly eclipsing the annual salary of the Governor of California, which stands at $245,929. The report forcefully argues that had CalPERS been managed with genuine fiduciary discipline and transparent reporting, its assets could plausably exceed $1 trillion today, rather than remaining mired in chronic underperformance. This suggests a potential loss of hundreds of billions of dollars in growth that could have benefited public employees and retirees.
A Veil of Secrecy: Challenging CalPERS’ Transparency Claims
CalPERS has long maintained its image as "the most transparent pension in America." However, the report fundamentally challenges this assertion, labeling CalPERS’ practices as a form of "performative transparency." Decades of resisting public records requests and actively lobbying against expanded disclosure requirements are cited as evidence of a deliberate strategy to obscure critical information. The report contends that while CalPERS might disclose low-risk procedural data, it aggressively withholds vital investment documents, particularly those pertaining to its burgeoning private market allocations. These include crucial private equity contracts, detailed fee schedules, and accurate valuation data, which are essential for understanding the true financial health and risk profile of the fund.
A striking example of this stance is attributed to CEO Marcie Frost, who is quoted stating that CalPERS "is not sharing the limited partnership agreements…private markets are private for a reason." This statement, according to the report, encapsulates the fund’s resistance to full disclosure. Furthermore, the investigation alleges that CalPERS has "massively misrepresented" its total investment fees, particularly those associated with private equity. The report suggests that these fees may be two to three times higher than officially disclosed, implying that billions of dollars are being paid to Wall Street managers that are not fully accounted for or understood by the fund’s beneficiaries or even its board.
The issue of transparency extends beyond CalPERS itself. Leaked 2024 records revealed a coordinated, aggressive, and secretive effort among pension officials and unions in several states, including California, Minnesota, New York, Ohio, and Rhode Island, to systematically block independent forensic audits of public pension funds. This collective resistance underscores a broader institutional reluctance within the public pension sector to open its books to external scrutiny, fueling concerns about accountability and potential mismanagement nationwide.
Governance in Question: An Underqualified and Politically Shaped Board
The report delves into the structural weaknesses within CalPERS’ governance framework, describing its board as politically shaped, underqualified, and inherently unable to effectively oversee a multi-billion-dollar portfolio dominated by opaque private-market assets. A critical finding is that members of the CalPERS board are not mandated to possess any financial or investment expertise. This lack of specialized knowledge forces them to rely heavily on the recommendations of pension staff and external Wall Street advisors, relationships that are frequently "rife with a myriad of potential conflicts of interest."
Edward Siedle, the report’s author, highlighted the gravity of this issue in an interview. He pointed to the stark reality that public pension funds, unlike their private counterparts, are exempt from the comprehensive federal Employee Retirement Income Security Act of 1974 (ERISA). Instead, they are governed by a "patchwork quilt of state statutes" that often fail to provide clear guidance or oversight, especially as the money management industry rapidly evolves. Siedle characterized board members of some public pension funds as "the dumbest investors in the room" in the eyes of Wall Street, suggesting that products are often designed specifically for this unregulated, less sophisticated market, rather than meeting stringent fiduciary standards.
The report also brought into focus the background of CalPERS CEO Marcie Frost, noting her lack of a college degree and her hiring approximately ten years prior, which had previously caused public controversy. While an educational background does not solely define competence, Siedle uses this detail to question the leadership standard at an institution managing such immense public wealth, especially when its performance is lagging so significantly. He contrasted CalPERS’ situation with other funds, noting the absence of other public pension funds with a high school graduate at the helm, particularly given CalPERS’ status as the world’s largest.
The Unseen Hand of Alternative Investments and Conflicted Gatekeepers
A significant portion of CalPERS’ investment strategy, and a major source of the report’s concerns, lies in its increasing allocation to "alternative investments." Over the last twenty-five years, these opaque, high-risk, high-cost investments—such as private equity, private credit, and real estate—have become an ever-growing percentage of public pension assets. The report reveals that fully sixty percent of all investments CalPERS has made in the last four years are in private investment, although CalPERS itself reports this figure closer to 40 percent. Siedle suggests that the actual figure is likely higher due to mischaracterization of certain investments to make them appear safer.
The fundamental problem with these alternative investments, according to Siedle, is their inherent lack of transparency. "Thirty years ago, I could have gotten from any public pension all of the operative investment documents. Today, I can get virtually none," he stated. This means that beneficiaries, and even oversight bodies, often have no clear understanding of where their money is being invested, what the precise performance metrics are, or what the true costs and fees entail. The alternative investment industry, the report notes, has universally refused to make prospectuses and other offering documents available to the public workers whose retirement assets are invested in these funds.
Adding another layer of concern, the report highlights a critical shift in the landscape of investment oversight: the "gatekeepers" — the firms that evaluate and recommend private equity investments — have themselves increasingly come under the control of private equity. For instance, Wilshire, CalPERS’ investment consultant for the past 40 years, is now owned by private equity. This creates a deeply problematic conflict of interest, where the advisors meant to protect the pension fund’s interests may instead have incentives aligned with the private equity firms they are supposed to be scrutinizing.
The issue of underreported fees is not unique to CalPERS. Siedle recounted a similar experience in Minnesota, where his forensic investigation revealed that pension fees were ten times greater than initially reported. Following his report, the Minnesota pension fund, which had previously claimed it was "impracticable to determine the fees," increased its disclosed fees by 400 percent within a month, and then another 400 percent the following year, resulting in an 800 percent increase in disclosed fees since his investigation. This demonstrates the potential for massive undisclosed costs within public pension funds that can significantly erode returns.
The Political Quagmire and the Absence of Accountability
The report unequivocally concludes that CalPERS is incapable of reforming itself from within. The incentives for maintaining the status quo are too strong, benefiting many individuals within CalPERS and the broader political establishment. Siedle argues that in every state, "Republicans and Democrats are using public pension monies to further their political agendas." He asserts that public pensions often make investment decisions based on political factors rather than purely on investment merit, characterizing this as "the only explanation for many of these investments." Both political parties, he claims, benefit from the lack of transparency, leveraging public pension assets to advance their political ambitions and offering "lucrative investment contracts" that can create billionaires overnight.
This politicization extends to the lack of regulatory oversight. Remarkably, no federal or state regulator, nor any law enforcement agency, actively monitors CalPERS. This glaring "regulatory gap" creates an environment ripe for the proliferation of complex investment structures and opaque fee arrangements, with limited oversight or enforcement. Despite the RPEA’s proposal for an Independent Inspector General for CalPERS, this critical recommendation was "shot down," according to Siedle, highlighting the entrenched resistance to external accountability from political players in California.
A Call for Independent Oversight: The Path Forward
The primary recommendation stemming from the report is the establishment of an Independent Inspector General for CalPERS. This proposed role would be empowered to investigate misconduct, enforce transparency, review benchmarks and valuations, and protect beneficiaries from conflicts of interest. Such an independent body is deemed essential to break the cycle of underperformance and opacity, providing a much-needed layer of scrutiny that is currently absent.
The report’s final conclusion is stark: "This is not a technical failure; it is a governance failure — plain and simple." It warns that "until there is accountability, the massive losses will continue, paid for by the very people the system was created to protect." This underscores the urgent need for structural changes to safeguard the retirement security of millions of public employees and retirees in California.
The Whistleblower Behind the Report: Edward Siedle’s Unprecedented Investigation
The groundbreaking nature of this report is amplified by the track record of its author, Edward Siedle. A former Securities and Exchange Commission (SEC) enforcement official turned whistleblower lawyer, Siedle is the owner of Benchmark Financial Services and is widely recognized in corporate crime circles for securing some of the largest whistleblower awards in history. These include a $50 million award in 2018 for providing information to the SEC that led to JPMorgan Chase paying the government $267 million to settle conflict of interest charges in 2015, and the largest CFTC whistleblower award of $30 million for his share in the same settlement.
Siedle confirmed that this CalPERS report marks the first-ever forensic investigation of its kind into the massive fund. His work on public pensions is also the subject of a 90-minute documentary titled "Pension Fight Club," which chronicles his investigative journey across the United States since 2013. The film follows his forensic investigations, starting with the smallest state pension fund in Rhode Island ($8 billion), moving to North Carolina ($100 billion), and then to Ohio, Minnesota, and finally, California with CalPERS ($600 billion). This progression highlights a pattern of systemic issues that Siedle has uncovered across various public pension systems, making the CalPERS report a culmination of years of dedicated scrutiny.
Broader Implications for Public Pension Systems Nationwide
The issues brought to light by the CalPERS report resonate far beyond California’s borders, serving as a critical case study for the estimated $6.5 trillion public pension fund landscape across the United States. Unlike the $14 trillion private pension fund sector, which is comprehensively regulated by ERISA, public pensions remain largely unregulated by federal law, relying instead on fragmented state statutes that often lag behind the complexities of modern financial markets. This regulatory disparity creates an environment where opacity and potential conflicts of interest can flourish, placing the retirement security of millions of public servants at risk.
The CalPERS investigation underscores a nationwide challenge: how to ensure robust governance, genuine transparency, and unwavering fiduciary duty within public pension funds. The report’s findings suggest that without independent oversight and a fundamental shift towards accountability, the "massive losses" and erosion of trust will continue, threatening the financial bedrock of public sector retirement systems across the nation. The call for an Independent Inspector General for CalPERS, therefore, is not merely a recommendation for one fund, but a potential blueprint for reform that could safeguard the futures of countless public employees throughout America.
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