CalPERS Committed $21 Billion to Diversity But Still Can’t Say If It Paid Off

Federal contractors have until July 24 to certify they don’t run illegal DEI programs, or risk the fate of IBM, which paid $17 million in May to settle the first case brought under the Justice Department’s Civil Rights Fraud Initiative. Every institution that touches federal money has had to answer, under oath and under the threat of treble damages, whether its diversity policies are legal. Public pension funds, which hold $5.13 trillion in retirement assets for roughly 13.6 million active workers, have never had to answer whether theirs are prudent.

I’ve spent thirty years reviewing investment-manager due-diligence files as an expert witness in securities and fiduciary litigation. The kind of document that survives cross-examination shows the money, shows the return, and shows the return against a named benchmark. The kind that doesn’t is the kind a plaintiff’s lawyer builds a case around.

CalPERS’ own paperwork is the second kind. Under Assembly Bill 890, the fund has reported to the California Legislature every year since 2023 on its allocations to “emerging” and “diverse” investment managers. The latest report, filed in March, shows nearly $21 billion committed to diverse managers and $6.2 billion to emerging managers since 2022, including $7.3 billion and $2.2 billion respectively in the last fiscal year alone. The report opens by invoking CalPERS’ fiduciary duty to its 2.4 million members. It runs twelve pages. It names three dozen managers and lists what each one runs, by asset class, by the year it was first engaged. What it never does, in four consecutive annual filings, is disclose a net-of-fee return for the diverse-manager segment against a stated benchmark.

CalPERS has that data somewhere. Its Sustainable Investments Annual Program Review, presented to the board in November, says the fund’s dedicated emerging-manager platforms have posted mixed results. Some have beaten their benchmark net of fees; others have lagged, in some cases badly. On two of the four platforms, the review concludes plainly that “it’s too early to draw conclusions.” That’s an honest answer. It isn’t the answer in the document the Legislature actually gets, and it raises the question a duty of prudence is supposed to answer before the money goes out the door, not four years and $21 billion later.

The report has one more tell. California’s Proposition 209 bars state agencies from granting preferential treatment based on race, sex, or ethnicity in public contracting, and CalPERS says so, in the same document that spends most of its pages sorting managers by exactly those categories. New York City’s pension funds reported $16.82 billion invested with minority- and women-owned managers as of mid-2022 and called them “among the best performing” in the portfolio, again with no benchmark attached. In Illinois, the lawmakers who wrote the state’s manager-diversity mandate spent a 2025 legislative hearing complaining that the Chicago Teachers’ fund had hit its 20% target mostly with women-led firms, which one state senator said wasn’t the diversity he’d had in mind. Nobody in that room asked what the returns were.

The empirical case for these programs leans heavily on McKinsey’s diversity-and-performance studies, which corporate boards and public pension staff alike have cited as justification for years. Two accounting professors tried to replicate them in 2024 using McKinsey’s own method on the S&P 500 and found no statistically significant relationship between executive racial diversity and any of six financial performance measures, including return on equity and total shareholder return. The legal ground hasn’t been any kinder to these programs than the data has, whatever the political shorthand suggests.

Some defenders will say that ground shifted when Students for Fair Admissions struck down Harvard’s race-conscious admissions program three years ago. It hasn’t shifted as far as the rhetoric suggests. SFFA is a Title VI and Equal Protection case about college admissions; it doesn’t directly govern how a pension board picks an investment manager, which is a contracting decision courts have analyzed under 42 U.S.C. §1981 and, because CalPERS is a state actor, under the Equal Protection Clause on its own terms. No metaphor required. A federal court in Kentucky reached almost that conclusion in September 2024, enjoining the Transportation Department’s use of race-based presumptions in a highway-contractor program on equal-protection grounds, before the agency mooted the case by rescinding the presumptions itself. That ruling says nothing about whether CalPERS’ program is lawful. It says the theory a pension board’s own program has never been tested against is no longer academic.

None of that is actually the point, though it’ll be the headline argument everywhere else this runs. A pension trustee doesn’t get to wait for a court to settle the constitutional question before he owes his members an answer. The duty of prudence requires him to know, in real time, what the fund’s money is earning and against what it’s being measured, on every material allocation, before anyone can call it prudent. CalPERS can tell the Legislature the name, asset class, and demographic profile of every diverse manager it has hired since 2022. What it can’t tell its own board, or the millions of members counting on it, is whether the $21 billion worked. A fiduciary who can’t answer that isn’t running a diversity program. He’s carrying a liability nobody has priced yet.