Expert warns CalPERS board that fast-moving geopolitics are now a primary investment risk

Lionel Johnson, president of the Pacific Pension Institute, told the California Public Employees Retirement System’s board that a shifting international order has made geopolitical decisions one of the fastest-moving and least predictable variables for long-term investors.

"What changes now is that the guarantee is gone, and the risk it used to hold is now live," Johnson said in a presentation at the board’s off-site, urging trustees to treat policy, sanctions and supply‑chain choke points as material risks that require faster governance and scenario planning.

Johnson outlined four dimensions trustees should watch: the changing map of diversification as markets decouple; the speed of policy actions such as sanctions or tariffs that can immobilize positions; narrow geographic and industrial choke points—examples he cited include rare‑earth processing and sea lanes—and the way values (labor and human‑rights issues) have become price drivers rather than only moral considerations.

"Policy has become the portfolio’s fastest moving variable," Johnson said. He pointed to recent trade moves and hearings on forced‑labor rules that could reshape supply chains within months rather than years.

CalPERS Chief Investment Officer Stephen Gilmore and trustees asked about operational responses. Gilmore said the fund is expanding scenario analysis and total‑portfolio thinking, and trustees pressed staff on stress‑testing for rapid policy shocks and forced‑labor tariffs.

Johnson urged the board to ensure it can "see, decide, and act" at the cadence the current geopolitical environment demands. "The funds that come through this decade with their obligations to their members intact will not be the ones that guess the politics correctly," he said. "They will be the ones who understood before their peers did that the distance between the world out there and your portfolios in here are all but closed."

The presentation came after CalPERS CEO Marcy Frost and CIO Gilmore reviewed recent performance—preliminary FY25‑26 returns and an 85% funded level—context Johnson said makes governance and risk identification especially important as the fund deploys capital.

The off‑site Q&A flagged operational next steps: more robust scenario play‑outs, earlier horizon scanning for policy moves, and clearer board protocols to act quickly if positions are threatened by extraneous policy decisions.

The board recessed the open session after manager and public presentations and scheduled a closed session to continue discussion on investment strategy.