A debate is raging inside the California Public Employees' Retirement System (CalPERS) over whether it should quickly exit its Russia investments—at a hefty cost.

In the past week, staffers at the largest U.S. public pension discussed the possibility of dumping the holdings, a decision that would ultimately require the board's approval. That followed California Governor Gavin Newsom's call for state pensions to cut off money to Russia following its invasion of Ukraine—to send a message to the world that the country is uninvestable.

Then came the price tag: CalPERS would have to mark down its entire portfolio of publicly traded Russian investments—recently valued at roughly $300 million—to zero. Some senior managers reckoned the investments would be worthless if they tagged them for hasty disposal amid stiff sanctions and swooning prices for Russian assets, according to a person familiar with the matter.