The state is in the midst of the greatest affordable housing crisis in its history, Connell said at a meeting of the investment committee. She has proposed CalPERS and the $100 billion California State Teachers' Retirement System finance multifamily units that could include mixed-use and mixed income projects. The goal for CalPERS would be a 15 percent return.

Meanwhile, the CalPERS Board of Administration, serving as the pension fund's Investment Committee, approved hiring 11 venture capital and private equity firms to direct the capital investments.

Investments in the program will capitalize on the state's expected growth rate of about 6 million new residents and 2 million new households, 70 percent of which are likely to occur in urban and rural areas around Los Angeles, San Francisco and San Diego.Investment partners include the Silicon Valley Community Ventures Fund II, which will invest $10 million in Northern California; Draper Fisher, which will invest $20 million in the Central Valley and Bank of America, which will invest $50 million statewide.