California’s $500 billion pension fund in limbo over Bitcoin exposure

California’s public pension system, the California Public Employees’ Retirement System (CalPERS), held forum talks on Wednesday, where candidates vying for seats on its Board were divided about exposing the fund to Bitcoin.

The $506 billion fund, which serves more than 2 million retirement members and 1.5 million health program participants, holds shares of Michael Saylor’s Strategy (MSTR), the largest publicly listed Bitcoin holding company in the world, with 636,505 Bitcoins as of September 4.

During opening statements, incumbent board member David Miller threw cheap shots at challenger Dominick Bei over his ties to a Bitcoin education and advocacy group. 

“Cryptocurrency should not have a seat on our board and never should,” remarked Miller, referring to Bei’s nonprofit, Proof of Workforce, which educates people about Bitcoin.

“CalPERS owns shares in the largest bitcoin holding company in the world, MicroStrategy, as a board member our job is not to pick investments, we hired a CIO to do that who is properly incentivized to find gains,” Bei responded.

Miller then told attendees about the difference between indirect holdings and outright crypto purchases. “Investing in a business that’s working with Bitcoin transactions is a very different game than direct investment in buying Bitcoin,” he said.

Candidates say ‘Bitcoin has no place’ in a pension fund

Steve Mermell, another challenger, responded with a firm rejection of cryptocurrencies. When asked if Bitcoin had a place in CalPERS’ portfolio, Mermell exclaimed: 

“Hell no! It all sounds so good until it’s not. It is opaque, no one understands it, highly speculative, and if you want to invest your money in it, have at it. It has no place, no place, in a pension system.”

He also mentioned some of California’s darkest financial episodes due to “high–risk” investments, including the 1994 Orange County bankruptcy and the late 2001 financial fraud scandal of American energy company Enron. 

Still, Bei did not explicitly endorse direct cryptocurrency investments during the forum, but he told his competitors to have an honest conversation about the system’s exposure. He noted that MicroStrategy, now rebranded as Strategy, has delivered strong returns in recent years, and CalPERS benefits indirectly as a shareholder.

As of its second-quarter 13F filing, CalPERS reported holding 410,596 shares of Strategy valued at $165.9 million, giving it one of the largest indirect stakes in Bitcoin among U.S. pension funds.

Other candidates like Troy Johnson admitted there were risks in crypto investments, saying he is “very wary of hyper-sensitive investments like crypto,” but wouldn’t close the door entirely on it.

Incumbent Jose Luis Pacheco dismissed Bitcoin outright as a long-term investment for CalPERS but was more positive about blockchain technology. 

“Blockchain is an emerging technology with promise, and we should study this opportunity through partnerships and research,” the IT professor noted.

Private equity, transparency, and environmental discussions

Beyond Bitcoin, the forum also talked about other CalPERS’ investment possibilities. One being its use of private equity. Retiree groups have been worried due to the lack of transparency surrounding fees paid to private equity brokers. Earlier this year, one group announced plans to fund an independent audit of CalPERS partly due to these concerns.

“Are these investments being made to make people rich, or to further the fund?” Mermell asked members, pressing for more clear answers for why some brokers were receiving sizable fees.

Miller cited climate change and governance standards as critical considerations for CalPERS’ investment selections during the forum’s discussion of risk management and divestment. Holdings may or may not be suitable for a long-term portfolio, depending on these factors, he stated.