The core of the discussion is the transition from a siloed, bucket-based SAA to a holistic TPA. TPA focuses on the entire portfolio's contribution to the fund's objectives, using a simple reference portfolio as a benchmark for risk and performance, rather than managing to rigid asset class targets.
A key benefit of the TPA is clarifying the roles of the board and management. The board sets the overall risk appetite by approving the reference portfolio, while management is held accountable for actively deviating from that benchmark to generate excess returns.
Gilmore identifies CalPERS's past pro-cyclicality—de-risking during crises and adding risk during exuberant markets—as a significant performance drag. The TPA's stable reference portfolio is designed to act as an anchor, encouraging more disciplined, counter-cyclical rebalancing and a more consistent risk posture through market cycles.
The conversation highlights the practical challenges of implementing TPA at a $600 billion fund. Key hurdles include a multi-year project to simplify and integrate disparate technology systems for a true whole-of-portfolio view and developing processes to compare diverse opportunities (e.g., public vs. private) in a common language.
Keep pulling the thread on Stephen Gilmore.