Stephen Gilmore, CIO of CalPERS, is leading a strategic shift from a traditional Strategic Asset Allocation (SAA) model to a Total Portfolio Approach (TPA).
The primary motivation is to combat CalPERS's historical tendency to be pro-cyclical (selling in downturns, buying in rallies), which has detracted from long-term value.
The new TPA framework is centered on a 75% equity / 25% bond reference portfolio, which will serve as a benchmark to improve governance, increase management accountability, and anchor the fund's risk appetite.
Implementation involves a multi-year overhaul of technology to achieve a holistic portfolio view and will see CalPERS become more active in managing public markets internally.
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Concerns Raised
CalPERS's historical tendency to be pro-cyclical and detract value during market extremes.
The significant, multi-year challenge of simplifying and integrating technology systems to get a true whole-of-portfolio view.
The difficulty of making a meaningful impact with individual investments due to the fund's massive scale.
Potential for geopolitical and national security factors to increasingly influence investment decisions.
Opportunities Identified
Implementing the Total Portfolio Approach to improve governance, accountability, and long-term returns.
Using the new reference portfolio to instill a more disciplined, counter-cyclical investment posture.
Increasing internal management of public markets due to improved balance sheet and liquidity management capabilities.
Leveraging a successful private equity program through partnerships and co-investments.