Government Spending

Pension Reform, California Style: More Politicized Investment Decisions, Please!


It's a wonder that they still know how to breathe

The California Legislature, which should be put out on a barge and sent to the Strait of Hormuz, is at it again:

California's public pension funds would have to report the ethnicity and gender of some of the outside investment managers they hire under a bill that passed the state Assembly on Thursday.

The bill states that businesses owned by women and minorities are not adequately represented in the state's pension fund portfolios, compared to their proportion of California's population. It passed on a 41-22 vote and now moves to the state Senate. […]

The bill seeks to increase the pension funds' business with what it terms "emerging investment managers." It defines those as qualified investment advisers who are women or members of a minority group, and who would manage a portfolio of between $10 million and $1 billion.

Supporters of the measure say the reporting requirement is necessary to ensure diversity in the investment contracts of California's pension funds. They want to see 10 percent of the funds' portfolios managed by emerging investment managers.

Oh sure, CalPERS lost $55 billion in 2008-09, needs $600 million pronto from the General Fund, and announced last week 10-year-earnings forecast "well below the current assumed rate of 7.75 percent a year," but as alert legislators point out, that's not the fault of non-white men!


"It is true that our pension systems are in trouble, but it is not because minorities are involved," said Assemblyman Juan Arambula, I-Fresno. "The biggest opportunities for economic investments are in minority communities." […]

"You might think that we're trying to discuss issues of the 1950s about integration," said Assemblyman Mike Davis, D-Los Angeles, who introduced the bill. "We're talking here about the issue of inclusion." […]

"I want not only the big Wall Street firms to have opportunities for financial management," Davis said. "When you look at the mortgage crisis, it wasn't the emerging firms that were at the heart of it."

Back in February of 2009, Reason's cover story warned of two things: 1) Pensions would be "The Next Catastrophe" in economic policy, and 2) politicizing investment decisions was making that catastrophe worse. But, you know, juvenile libertarianism and all that.

Link via Conor Friedersdorf's Twitter feed.

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  1. “Priceless” utterances. I especially liked “The biggest opportunities for economic investments are in minority communities.”

  2. I think this is a great bill. Of course that’s probably because I would love to see the implosion of a state. We need a failure large enough to serve as a warning to others. Apparently all of the problems we’ve had in this world haven’t been big enough to stop the belief in authoritarian central planning.

    1. The politicians in this state have gone completely bat shit crazy.


      If they aren’t causing damage to their own economy by rabble rousing boycots against AZ, which will cost us our electric power and tourist dollars if successful, they are screwing the budget even more by investing based on race fantasies.

    2. If California can’t borrow and implodes, it will surely be blamed on speculators, ratings agencies, market failures. Witness Greece.

      1. It will also be blamed on the amorphous enemies of peace, fairness, harmony, and the people: selfish private individuals(i.e. most people). Everyone is going to get raped by this one.

        An observation: California is like a sinking ship that is desperately trying to harpoon anything within its vicinty (taxpayers in other states) to stay afloat. I wonder how many of us are going to get impaled before we finally give it up for dead.

  3. Can they pass a law to get me on the Lakers? I think the best new opportunities to win a championship exist with emerging non-athletes.

  4. This is why I am glad that George Bush’s first attempt to nationalize the financial markets via Social Security “Privatization” failed.

    Can you imagine the effect of the Fed Govt becoming the biggest investor in the capital markets & picking where money is directed politically?

    1. Can you imagine the effect of the Fed Govt becoming the biggest investor in the capital markets & picking where money is directed politically?

      That would indeed by catastrophic. I don’t recall the details of the Bush proposal, but I certainly recall it having the federal government direct investments in private capital markets, though.

      1. I had thought the plan allowed people to invest the money themselves, not that it really matters now.

      2. My memory may be faulty, but I think there was a trial balloon during the Clinton Administration regarding FedGov controlled investment, but the Bush Administration suggested a plan that let those paying SocSec to invest a small percentage of what they paid themselves. The Bush plan was so timid and the effort to push it was so limp that it seemed to me that it was more a clown dance than a serious effort.

        1. I think a large part of that was because of the market crash. Makes that a really tough sell, especially when you have the media and so many entrenched forces screeching about the social “safety net”.

    2. “Can you imagine the effect of the Fed Govt becoming the biggest investor in the capital markets & picking where money is directed politically?”

      Um… havent we been doing that since the fall of 2008?

  5. Can you imagine the effect of the Fed Govt becoming the biggest investor in the capital markets & picking where money is directed politically?

    I can’t imagine it not doing that. I’m not a hundred years old.

  6. The California Legislature, which should be put out on a barge and sent to the Strait of Hormuz

    Tell us what you really think, Matt.

  7. Isn’t California paying people with IOUs now? When will vendors stop dealing with it?

  8. It’s a total and complete disconnect from reality. California is over. I can only hope the implosion happens sooner rather than later.

    1. And it will be blamed on the libertarians. Just watch.

      1. Even though this bill was apparently a partisan Democratic bill, opposed by the handful of Republicans.

        1. Just watch.

  9. Now THAT is racist!

  10. Well, we stole the pension money from the taxpayers. But then the state legislature let the minority small businesses steal it from us. Wow.

  11. Affirmative investing?

    1. Since every liberal will tell you markets are racist and a minority can’t get a break in this country, isn’t investing in minority businesses a bad idea? Not that it is right, but if the whole society is stacked against you, doesn’t that make your business a bad investment?

  12. Matt, can you help me organize a liesurely cruise along the Somali coast for the overworked CA legislators?

  13. Supporters of the measure say the reporting requirement is necessary to ensure diversity in the investment contracts of California’s pension funds.

    Yeah, it’s not too important to have, you know, gains on some of these investments. But diversity is a must when it comes to who handles the funds.

    Any way we could help the big earthquake get here sooner?

    1. CA might actually become reasonable if the earlthquake takes LA and San Fran with it.

  14. Dear San Andreas fault,

    Faster please.

  15. How about looking at performance over, say, two bull and two bear markets and benchmarking against standard indexes?
    Pick investment managers who are consistently beating the indexes. And who gives a flying whoop if the managers are lesbians, 15 year olds, refugees from Somalia, white dudes from Wharton, or green transgendered Martians.

    1. But that’s impartial! And everybody knows that impartial is inherently racist!

    2. Pick investment managers who are consistently beating the indexes.

      You mean, pick from the handful of investment managers who, by random chance, happened to outperform their peers, because SOMEBODY will always get lucky despite not being any better than others.

      The reality is, investment managers who actively trade almost never outperform the broad market, because of trading fees from the churn.

      1. Exactly. You can’t consistently beat the market. You can for a few years. You can even get wildly wealthy by hitting it big on an emerging company. But you cannot for year after year get higher than average returns.

        1. I beg to differ

        2. i dont know about that… Buffet has managed to do so over his life

          1. And how much of that is due to Buffet using his influence with government to tilt things his way?

            1. I don’t doubt their is some of that going on as is true accross the board. But Buffet’s success is mainly from really smart investing. He knows how to place a true value on what a company is worth based on anticipated future cash flows. Then looks for bargains that have management he feels is competent. Then he has the patience to buy low and sell high. the guy really is a guru.

              1. He also makes a lot of money buying small family owned companies who are selling out because they can’t afford to pay the inheritance tax. And he makes money in life insurance which is often used as a way around the estate tax.

                When Buffet started campaigning to keep the death tax, that is when I figured out he was a scumbag.

            2. Statistically, over any time frame, even a very long one like Buffet’s career, somebody will beat the market.

              This isn’t to say that Buffet’s discipline isn’t one reason why he’s beat the market. But other guys with similar disciplines have reverted to the mean over time.

  16. California apparently is not too big to fail.

    1. We’ll see. Obama has a less than stellar track record with the truth, and he’s said no more bailouts. Which means we’ll see more bailouts. I don’t see him not doing it for the biggest blue state.

    2. The problem for the Democrats is figuring out how to bail out only the parts of California north of Orange County.

  17. What’s interesting about this to me is that it is apparently completely inconceivable to these politicians that a contract would be awarded based solely on performance, that every time the State does business with someone, it has been, and will be, based mostly on Who You Know.

    1. That’s just madness! What if people start judging us on our performance?

  18. hahahahhahahahahhahahahaha

    Oh jesus, I’m so glad I don’t live in California.

    1. Do you think that will get you out of paying for the impending California bailout?

    2. Oh, how I would like to gloat, but even in the South here, our state legislature has plenty of lefty crackheads.

      Have you ever heard of potty parity? The commie fuckhead who represents Durham introduced this idea in the legislature over a decade ago, I forget how far it went. It is the idea that because women spend more time in the bathroom than men, ‘public accommodations’ should be made to make room for more stalls foe women than men, I believe a 1 to 1.5 ratio. That’s Mo’ chompin’ down a ham sandwich fucked up.

      1. That’s pretty damn stupid as a mandate, but not a bad idea as a policy (for new bathrooms).

  19. /Facepalm/

    I live here so I hear this crap weekly but seriously, can’t we just die (as a state) already.

  20. The bill states that businesses owned by women and minorities are not adequately represented

    This dovetails nicely with what I (and others) have been thinking about the kerfluffle over Rand Paul’s comments about the Civil Rights Act. It’s not fair that some businesses have more customers than others; the government should step in, and allocate customers (by force, if necessary) among the various providers of goods and services.

    Any recognition of substantive qualitative differences between people is elitist (probably racist) and utterly un-American.

  21. I love to tweak Atlas Shrugged for its literary shortcomings, especially the cardboard caricatures of the “looters.” But hardly a day goes by some bureaucrat or politician doesn’t make me wonder if I haven’t fallen into its pages.

  22. Why in the world would California worry about the efficacy of their union workers pension benefits? If they fail, the Feds will pick up the tab.

    The 403(b) for my job has a mutual fund option that doesn’t invest in tobacco, oil, weapons manufacturers, yadda yadda, and focuses on solar, wind, and minority and women-owned businesses. It’s fucking pathetic. For the last couple of years, the interest has been hovering near zero. Even before the housing bubble burst it was only making 6 or 7 percent. Almost everyone here is guilted into investing in it. Idiots.

    1. That is fucking hysterical.

    2. And can’t you spend smug satisfaction somewhere?

      1. Yes- at Whole Foods.

        Or at least you could before the CEO tripped up and pissed off the libs with his healthcare views.

        1. Yes. Smug satisfaction club canceled stopped honoring charges to whole foods on its debit cards shortly after that op ed appeared.

      2. Smug satisfaction is its own reward.

      3. I think it is accepted as currency at most food co-ops

      4. My regular prostitute accepts it. FYI She graduated from a public school with a 3.8 GPA. This country is fucked.

    3. That is pretty fucked up, Sugfree. Those who run your 403(b) truly must lack a conscience to waste yours and the investment of other people on the betterment of their supposed ‘social’ conscience.

  23. Sounds pretty reasonable to me dude, what a great idea.


  24. As expected, the election of Mr. Obama has not ended the politics of race, it has only emboldened it.

  25. I was really surprised that my CA state income tax refund arrived in the mail; I was expecting to get an autographed photo of Arnold…

  26. “But, you know, juvenile libertarianism and all that.”

    On the other hand, it took a child to observe, accurately, that the Emperor had no clothes.

    1. *Files this gem away for future use*

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