CalPERS will implement a total portfolio approach to respond more dynamically to market fluctuations
The Board of Administration of US pension fund CalPERS has voted in favour of adopting a total portfolio approach (TPA), which replaces the fund’s existing strategic asset allocation (SAA) model as of 1 July, 2026.
The board said TPA would increase transparency and give staff more flexibility to capitalise on a variety of market opportunities across asset classes.
The fund also adopted a reference portfolio, set at 75 per cent equities and 25 per cent bonds, which will be used to judge the performance of the portfolio.
We are the first pension fund in the United States to [adopt TPA], and I believe it will give CalPERS staff the edge they need to make sound investment decisions – David Miller, IC Chair of CalPERS
Under TPA, the focus will be on which investments can best contribute to the performance of the entire CalPERS portfolio, as opposed to achieving individual asset class targets that were periodically reviewed. Previously, the fund used 11 benchmarks, one for each asset class, to measure performance against.
CalPERS has also confirmed the fund’s discount rate at 6.8 per cent. This rate is comparable to an assumed rate of return and is used to help calculate employer contributions.
“The CalPERS Board made history today by adopting the total portfolio approach after learning about its potential to deliver better returns for our members,” David Miller, Chair of the CalPERS Investment Committee, said.
“We are the first pension fund in the United States to do this, and I believe it will give CalPERS staff the edge they need to make sound investment decisions,” he said.
TPA Contributes to Investment Performance
Under the SAA model, CalPERS’ board set asset allocation targets every four years, while a mid-cycle check-in was also conducted to determine if the targets needed to change.
But without specific asset targets in place, CalPERS investment staff members will now have the discretion under TPA to rapidly adjust their investment decisions and strategies to market conditions, it said.
The fund referenced a survey of 26 large institutional investors by the Thinking Ahead Institute from March 2025, which found that TPA outperformed the SAA model by 1.3 per cent per year over a 10-year period.
“This is an evolution in our investment decision-making approach at CalPERS, and I commend the board for taking such a bold step,” Marcie Frost, Chief Executive Officer of CalPERS, said.
“TPA encourages greater collaboration among the investment team, so that their collective wisdom is harnessed to judge investments based on their potential to benefit the entire portfolio.”
A Different View on TPA – Setting Risk Measures
Under CalPERS’ previous SAA model, the investment committee reviewed and approved asset class targets every four years. But the investment team had a reasonable level of discretion in deviating from the SAA.
For example, in listed equities the team can be seven per cent over or underweight compared to the SAA, while in fixed income the fund can be plus or minus six per cent.
Yet, using 11 different benchmarks didn’t always provide a clear picture of how the overall fund is performing.
Stephen Gilmore, who joined the fund as its Chief Investment Officer (CIO) in July 2024, has extensive experience with TPA, having worked at New Zealand Super and the Future Fund.
In a podcast with the Thinking Ahead Institute in July, he said it was likely CalPERS’ approach would look different from that of his previous employers.
One always needs to take into account the starting point for these organisations and to be thinking about what makes most sense for the particular organisation. There’s no single way of pursuing TPA – Stephen Gilmore, CIO of CalPERS
“We’ve been talking about using, or potentially using, a reference portfolio and [setting] active risk metrics around that,” he said at the time.
Instead of having asset class-specific risk limits, under TPA an active risk limit would be set for the overall portfolio and this would align it better with the investment objective of CalPERS.
“One always needs to take into account the starting point for these organisations and to be thinking about what makes most sense for the particular organisation. There’s no single way of pursuing TPA,” Gilmore said.
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