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CalPERS filed its fourth annual diversity report with the California Legislature in March. The document runs 12 pages, names 51 investment managers by asset class, and opens by invoking the fund’s fiduciary duty to its 2.4 million members.
It discloses that CalPERS has committed nearly $21 billion to diverse managers and $6.2 billion to emerging managers since January 2022. What it never discloses, in four consecutive filings, is a net-of-fee return for that money measured against any stated benchmark. CalPERS just posted a 14.8% preliminary investment return for the fiscal year ending June 30, 2026, its best mark in five years, which pushed the fund’s assets to $637.1 billion and its overall funded status to 85%, up from 79% a year earlier. That improvement is real, and it answers a different question than the one this report owes its members. A fiduciary who can’t say whether $21 billion committed to a specific manager program actually outperformed is not running a diversity initiative. He is carrying an unpriced liability inside a fund that otherwise just had its best year in five.
That report is a textbook example of what modern fiduciary duty has become: an elaborate paper trail that answers every question except the one that matters. It satisfies the process. It never touches the substance the process was supposed to protect.
A Massachusetts judge would have found this arrangement absurd. In 1830, in Harvard College v. Amory, Justice Samuel Putnam refused to hold a trustee liable simply because his investments had lost money. Putnam’s standard asked whether the trustee had managed the money the way a sensible, prudent person manages his own, weighing probable income against the safety of the capital entrusted to him. That ruling became the foundation of American trust law for the next two centuries. But notice what Putnam was actually protecting. Process mattered to him because it was evidence that the trustee’s attention never left the beneficiary’s interest. Process was never a stand-alone virtue. It was proof of loyalty, not a substitute for it.
The U.S. Department of Labor made almost exactly this argument to the Supreme Court in July and got it right. In an amicus brief filed in Anderson v. Intel Corp. Investment Policy Committee, the government urged the Court to require plaintiffs alleging imprudent investment decisions to identify a meaningful benchmark before a claim can proceed, rather than letting a bad outcome alone imply a bad process. That isn’t a retreat from fiduciary duty. It is Putnam’s own standard, applied faithfully, protecting a genuine fiduciary from a plaintiff’s hindsight. The problem in American governance today isn’t that process matters. The problem is that too many institutions have learned to produce a process that satisfies a filing requirement while never once asking Putnam’s actual question, whether the money served the person who owned it.
Fiduciary duty was never a peripheral concept to the men who built the American constitutional order. It was one of the load-bearing ideas of the entire design, and they said so directly.
John Locke, whose Second Treatise the Founding generation had all but memorized, described legislative power in exactly these terms. The legislative, he wrote, is only a fiduciary power to act for certain ends, and when that trust is neglected or opposed, it is forfeited and the power reverts to the people who granted it. James Wilson, defending the new Constitution at the Pennsylvania ratifying convention in December 1787, described the presidency itself as a public trust. Madison, in Federalist No. 57, argued that the entire aim of the Constitution was first to secure rulers with the wisdom and virtue to pursue the common good, and then to build in the precautions necessary to keep them virtuous while they held that trust.
Legal scholar Robert Natelson has documented at length that this language was not rhetorical decoration. The Founders built removal mechanisms into the Constitution, elections, impeachment, term limits, oaths of office, that function as the political equivalent of a beneficiary’s remedy against a faithless trustee. A trust without a remedy for breach isn’t a trust. It’s a suggestion. The Constitution gave the American people teeth precisely because its authors assumed, correctly, that public officials would eventually be tempted to treat the public’s business as their own.
Thirty-plus years managing other people’s capital taught me one ironclad rule: fiduciary duty is not optional. Cook the books or spend beneficiary assets on something other than the beneficiary’s interest, and you get fired, sued, or stripped of your license. The past decade sitting as an expert witness in fiduciary and securities litigation, in federal and state courts, taught me the corollary. My job in that chair is simple: separate what an institution says it stands for from what it actually does under pressure. Apply that test to CalPERS’s own paperwork and it fails, not because diversity is disqualifying, but because the fund cannot answer the one question a trustee owes before the money goes out the door.
Congress offers a second version of the same failure. The House passed the Stop Insider Trading Act this year to bar members from buying new stock while in office. The bill lets members keep every share they already hold and still permits sales on seven days’ notice. Supporters call it meaningful reform. It is, more precisely, a compliance checklist: a documented process that creates the appearance of a fiduciary standard without imposing any substance of one. No private investment adviser could construct a disclosure regime this porous and call it a safeguard with a straight face. Congress can, because Congress is grading its own homework.
Recovering the Founders’ understanding of fiduciary duty wouldn’t require new legislation so much as a return to an old habit of judgment, the one Putnam applied and the one Locke, Wilson, and Madison assumed as the background condition of legitimate power. Ask not whether the process can be defended on paper, but whether the person who held the trust served the people who gave it to him. Every pension trustee, every member of Congress, and every regulator who has learned to hide behind the word process should have to answer that question, because self-government was never supposed to run on paperwork. It was supposed to run on trust, and trust, properly understood, comes with a remedy.
Jay Rogers is a financial professional with more than 30 years of experience in private equity, private credit, hedge funds, and wealth management. He has a BS from Northeastern University and has completed postgraduate studies at UCLA, UPENN, and Harvard. He writes about issues in constitutional law, national security, human nature, and public policy.
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