CalPERS Sees a Rare Energy Trade: Debt-Like Risk, Stock-Like Returns

The California Public Employees Retirement System wants to increase its exposure to the energy sector.

Peter Cashion, who leads the pension’s sustainable investment strategy, told Bloomberg in an interview that CalPERS already has exposure to the strategy and is evaluating additional commitments to similar vehicles.

The segment is an "underappreciated opportunity," he said, noting that private credit has largely focused on asset-backed lending and financing for traditional companies. Meanwhile, specialized financing for greenfield and Brownfield energy projects remains relatively limited. 

The pension fund also has an $800 million commitment to a climate-focused private credit fund managed by Goldman Sachs Asset Management. It has set a goal to invest $100 billion in climate solutions by 2030, spanning strategies designed to reduce carbon emissions, support the shift away from fossil fuels and help businesses and infrastructure adapt to a changing climate. CalPERS has already committed $60 billion to climate solutions as of last year, Bloomberg noted.

Cashion said that CalPERS’ view is that the transition to a lower-carbon economy could create investment opportunities across multiple sectors. The pension fund expects its climate target to be driven not only by its sustainability goals but also by the potential for stronger investment returns, he said.

Calpers, which manages approximately $640 billion in assets, continues to make sizable investments in private credit despite overall volatility in the market. CEO Marcy Frost said the pension system is targeting an 8% allocation to the asset class.

For energy-transition investments specifically, Cashion said private credit can provide companies with another source of capital to fund growth and reach sustainable profitability.

While energy-transition businesses have attracted substantial equity funding in recent years, he argued that debt financing can provide the additional leverage needed to expand without relying solely on further equity raises.

"There’s been a lot of equity raised over the last four or five years for energy transition," Cashion said. "But for companies to have proper profitability they need the leverage, they need the debt."

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