Keep pulling the thread on Stephen Gilmore.
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.
As part of its transition to a Total Portfolio Approach, CalPERS has recommended a new reference portfolio consisting of 75% equity and 25% bonds.
CalPERS's new Total Portfolio Approach will target an active risk range of around 400 basis points.
CalPERS, with $600 billion in assets, is the largest public pension fund in the U.S.
Australia's Future Fund was a beneficiary of the 2008 financial crisis because it held a low-risk portfolio with significant cash reserves, allowing it to invest when assets were very cheap.
The investment objective for Australia's Future Fund is to achieve a return of CPI plus four to five percent.
Under its previous Strategic Asset Allocation model, CalPERS management had delegated discretion equivalent to approximately 450 basis points of active risk.
Stephen Gilmore believes implementing a Total Portfolio Approach at CalPERS will improve governance by creating a more stable risk appetite and increasing management accountability.
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.
CalPERS does not anticipate becoming particularly active in direct private investments, aside from co-investments.
Stephen Gilmore expects CalPERS will become more active in managing public markets internally due to improved balance sheet and liquidity management.
CalPERS is undertaking a multi-year exercise to simplify its technology systems to achieve a better whole-of-portfolio view, moving away from best-of-breed applications for each asset class.