Politics driving CA pension investments

Oct. 5, 2012

By Joseph Perkins

The California State Teachers’ Retirement System announced this week that it is sinking $42.8 million into four infrastructure projects, including a solar power plant near Sacramento. That follows CalSTRS’ previous “investment” in another solar-power plant near the state capital, which will be operated by SunEdison of Belmont.

Said Harry Keiley, chairman of the pension fund’s investment committee in a prepared statement, “These investments reflect CalSTRS’ commitment to the California economy and our willingness to contribute to it in a way that helps our state and offers the fund long-term, steady cash flows.”

Well, I disagree. I think those CalSTRS investments in solar power were driven not by desire to earn the greatest return for the system’s retiree, but to advance the political cause of renewable energy.

Indeed, the pension dollars CalSTRS is risking on the solar-power plants near Sactown almost certainly would earn more over the over the short, medium and long term if it simply was invested in Chevron, the “supermajor” oil company based in San Ramon, Calif.

But Keiley and his committee don’t care about what it is in the best financial interests of the CalSTRS’ beneficiaries. They have subordinated their fiduciary responsibility to political advocacy.

Indeed, if CalSTRS investment decisions were based strictly on dollars and cents, there’s no way it would invest in solar power at this stage in the industry’s development.

While solar shows promise, it’s far from certain that it will emerge as a major provider of electricity. And it remains doubtful that solar power plants — like the ones on which CalSTRS is gambling the pensions of retired teachers — will ever turn a profit, sans government subsidy.

Indeed, among the 17 companies in the Bloomberg Global Large Solar Index, only one posted a profit during the second quarter of this year. The industry as a whole continues to hemorrhage red ink despite the billions of dollars they have received in taxpayer subsidies.

Keiley somehow thinks that the solar power plants into which CalSTRS has poured money will be different. He grossly understates the riskiness of the pension funds “investments” in solar power.

We’ve seen before such ill-considered investment decisions by California public pension funds. Most notably, the whopping $1 billion the California Public Employee Retirement System  lost on the failed Land Source development near Los Angeles.

CalSTRS won’t come remotely close to losing a billion bucks on its latest investments in solar power. But $42 million here, $42 million there and pretty soon Harry Keiley is talking real money.