Podcast consensus

Points of consensus

▶Multiple sources confirm CalPERS is undergoing a significant strategic overhaul centered on the Total Portfolio Approach (TPA), driven by new CIO Stephen Gilmore. This involves a new reference portfolio, a revised active risk target, and a focus on a whole-of-portfolio view.Apr 2026

▶There is agreement that CalPERS's immense scale ($600 billion) is a defining characteristic that shapes its investment strategy, enabling certain advantages like co-investments but creating challenges in areas like investing in emerging managers.Apr 2026

▶Sources indicate that internal governance and operational changes are critical enablers of the new investment strategy. Specifically, a shift to total-portfolio-based compensation and a multi-year technology simplification are cited as foundational to the TPA transition.Apr 2026

▶CalPERS is refining its private markets strategy, with a clear emphasis on increasing co-investments alongside major GPs and a stated intention to avoid significant activity in direct private investments.Apr 2026

Points of debate

▶There is a contrast between the current optimism surrounding the implementation of the Total Portfolio Approach and the historical reality that a previous, post-2008 attempt to implement a sophisticated factor-based asset allocation model was not fully successful.Apr 2026

▶A tension exists between CalPERS's historical investment behavior, which has been described as value-detracting and pro-cyclical (e.g., de-risking during the 2008 crisis), and the new TPA framework's goal of establishing a more stable, long-term risk appetite.Apr 2026

▶While CalPERS's private equity strategy has been successful since 2022, its reliance on large managers due to its scale makes it difficult to access potential alpha from smaller, emerging managers, presenting a potential opportunity cost.Apr 2026

▶The previous Strategic Asset Allocation model delegated approximately 450 basis points of active risk, whereas the new TPA model targets a range around 400 basis points, suggesting a potential tightening or redefinition of the fund's risk budget and management discretion.Apr 2026

Key themes

▶Strategic Pivot to Total Portfolio Approach (TPA)Apr 2026

CalPERS is undertaking a fundamental shift in its investment philosophy, moving away from a traditional Strategic Asset Allocation model to a Total Portfolio Approach. This change is championed by new CIO Stephen Gilmore and involves a new 75% equity / 25% bond reference portfolio, a target active risk of 400 basis points, and a holistic view of portfolio construction.

This transition represents a significant attempt to improve governance, stabilize risk appetite, and overcome historical pro-cyclical behavior, signaling that the institution is prioritizing flexibility and cross-asset collaboration over siloed management.

▶The Opportunities and Constraints of Immense ScaleApr 2026

As the largest U.S. public pension fund with $600 billion in assets, CalPERS's size dictates its strategic options. This scale allows it to negotiate favorable terms like fee-free co-investments, similar to other large asset owners, but also constrains its ability to make meaningful allocations to smaller, emerging managers.

Analysts should view CalPERS's strategy through the lens of this scale constraint; its preference for large managers and co-investments is not just a choice but a necessity, which impacts its universe of potential investments and sources of alpha.

▶Internal Overhaul of Governance and TechnologyApr 2026

The strategic shift to TPA is underpinned by significant internal changes. A crucial enabler was a prior reform to the compensation structure, which now rewards total fund performance. This is being complemented by a multi-year project to simplify technology systems to achieve a unified portfolio view.

These operational and cultural changes are as important as the investment strategy itself. Their successful implementation is a leading indicator of whether the TPA will be more effective than previous reform attempts.

▶Evolving Private Equity StrategyApr 2026

CalPERS, an early institutional investor in private equity, continues to refine its approach. The current strategy, which has been successful since 2022, focuses on strengthening partnerships with major GPs and increasing its volume of co-investments, while deliberately avoiding a move into direct private investments.

CalPERS is choosing a specific, capital-efficient path in private equity that leverages its scale for access and fee advantages without taking on the operational burden and risk of direct investing, indicating a focus on optimizing its existing manager relationships.

Source episodes

Sentiment over time

Not enough data for timeline

Changes over time

Early History

CalPERS establishes itself as a significant player in alternative investments, becoming one of The Carlyle Group's first institutional private equity investors.

2008 Financial Crisis & Aftermath

The fund's investment management is criticized for being pro-cyclical, liquidating assets and reducing risk during the downturn. A subsequent attempt by former CIO Joe Deere to implement a factor-based asset allocation model is not fully successful.

Pre-2024

Under CEO Marcy Frost, a critical governance change is implemented, shifting employee compensation to be based on total portfolio performance, laying the groundwork for a future strategic shift.

2022-Present

CalPERS's private equity strategy demonstrates particular success, with a refined focus on partnerships, alignment, and increasing co-investment activity.

2024

With the appointment of Stephen Gilmore as CIO, CalPERS formally begins a multi-year transition to a Total Portfolio Approach (TPA), recommending a new 75/25 reference portfolio and a ~400 bps active risk target.

Suggested prompts

How will the new 75/25 reference portfolio and 400 bps active risk target impact CalPERS's ability to meet its long-term liabilities, especially given its historical pro-cyclical tendencies? &nearr;What specific governance and technology challenges must CalPERS overcome to successfully implement the Total Portfolio Approach, given the partial failure of a previous factor-based model? &nearr;How does CalPERS's strategy of focusing on co-investments and large managers, while avoiding directs and emerging managers, affect its potential for alpha generation in private markets? &nearr;Given the shift to total-portfolio compensation, what metrics will be used to hold management accountable for performance, and how will this differ from the previous asset-class-specific model? &nearr;

Key concepts

Total Portfolio Approach (TPA) 2 ep Private Equity Strategy 3 ep Asset Allocation 2 ep Governance & Compensation 1 ep Risk Management 1 ep Technology & Operations 1 ep Investment Performance 1 ep Scale & Size 1 ep Talent Management 1 ep

Notable quotes

“As part of its transition to a Total Portfolio Approach, CalPERS has recommended a new reference portfolio consisting of 75% equity and 25% bonds.”

Stephen Gilmore · Stephen Gilmore – CalPERS’ Total Portfolio Approach (EP.486)

“According to Stephen Gilmore, CalPERS has historically detracted from value by being too pro-cyclical, such as liquidating assets and reducing risk during the 2008 financial crisis.”

Stephen Gilmore · Stephen Gilmore – CalPERS’ Total Portfolio Approach (EP.486)

“A key enabler for CalPERS's shift to a Total Portfolio Approach was a prior change in the compensation structure, implemented by CEO Marcy Frost, which rewards employees based on the performance of the entire portfolio rather than individual asset classes.”

Stephen Gilmore · Stephen Gilmore – CalPERS’ Total Portfolio Approach (EP.486)

Report last updated: Apr 8, 2026

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