CalPERS Board Votes to Approve Total Portfolio Approach

The board of the California Public Employees’ Retirement System voted Monday to adopt a “total portfolio approach” for its $589.54 billion portfolio, a change from its current strategic asset allocation portfolio design.

The total portfolio approach views and manages portfolio assets under a single objective, in contrast to strategic asset allocation, in which separate asset classes are siloed and managed separately. TPA has become increasingly appealing for asset owners in recent years.

Roger Urwin, a co-founder of the WTW Thinking Ahead Institute and among the pioneers of TPA, has written that the approach is not simply an investment method, but is “governance reimagined through a systems-lens.”

In September, CalPERS conducted a first reading of a new asset liability management policy that included the adoption of TPA.

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Materials for the November 17 meeting described TPA as an approach that “enshrines the belief that the portfolio is best managed as a whole, that every investment strategy and decision is made for its potential contribution to the overall, or total portfolio, and will lead to better investment performance and system funding.”

The CalPERS staff recommendation to the committee and full board “to adopt Total Portfolio Approach poses a meaningful change to the investment governance model,” the meeting documents stated. “However, there are no other changes to the Board of Administration’s (Board) oversight role or authority, nor would the [asset liability management] process change. Currently, the Board adopts a Strategic Asset Allocation that sets asset class allocation targets and provides management a range of discretion around those targets. Under Total Portfolio Approach, the Board will adopt a Formal Total Fund Risk that sets the [fund’s] risk profile and be periodically reviewed within the normal [asset-liability management] cycle.”

How It Works

Under the recommended policy, the fund’s board would adopt an investment governance model that sets a formal two-part total fund risk via a reference portfolio and active risk limits, according to board documents.

The staff’s recommended reference portfolio would be comprised of 75% equities and 25% bonds, changed from its current 72/28 reference portfolio. CalPERS would also see its total fund active risk limit increase to 400 basis points—with an operating range of 250 bps to 350 bps—from the current active risk of 230 bps.

Under the current CalPERS timeline, a new asset liability management policy could be implemented on July 1, 2026, including the adoption of the total portfolio approach.

A letter from Wilshire, CalPERS’ investment consultant, noted that the firm is “comfortable that moving forward with TPA is prudent, albeit not without risks. … We expect the TPA process to be one that is not set in place at a specified time in the future. Rather it is going to be a continual process of improvement to help drive positive performance results for the PERF.”

According to a paper from WTW’s Thinking Ahead institute, TPA measures opportunities for investment by contribution to the total portfolio outcome, rather than by asset class. TPA assesses performance based on the fund’s goals, rather than by benchmarks.

The paper also noted that a fund’s asset allocation under TPA is typically determined by a CIO-centric process, rather than a board-centric process. A TPA, is implemented by one team working together, rather than by several asset class teams competing for capital, WTW noted.

Melanie Pickett, head of asset servicing, Americas at Northern Trust, notes that TPA offers a more holistic, data-driven and integrated approach to portfolio management, “this allows large asset owners to be more agile in volatile markets, hedging exposures and risk more nimbly given the ability to understand a unified risk budget across the entire portfolio,” Pickett says.

This is not without it’s challenges. “TPA requires a level of transformation in operations and technology that can be difficult and costly,” Pickett says. “No single provider has fully solved the TPA technology challenge, so organizations like CalPERS must integrate several systems for accounting, private markets, and total portfolio analytics. A big risk is ensuring the quality and accuracy of data across complex portfolios, especially when daily trading and hedging decisions depend on this information.”

Why It’s Attractive

The total portfolio approach has been adopted by many global investors, including Singapore’s GIC, the Denmark’s ATP, Future Fund of Australia, the Canada Pension Plan Investment Board and the New Zealand Superannuation Fund, where current CalPERS CIO Stephen Gilmore previously served in the same role.

Industry observers liken total portfolio approach to an evolution of modern portfolio theory and strategic asset allocation. It “is a recognition that certain investments do not fit neatly into predefined buckets,” according to an article from Tony Davidow, a senior alternatives investment strategist at Franklin Templeton.

The real power of TPA is grounding decisions in factor analysis, says Chris Carrano, vice president at Venn by Two Sigma. “When every asset, whether equity, fixed income, real estate, or private credit, is measured through a common language of risk, investors can compare opportunities and portfolio impact on equal footing. Factor analysis, whether used in TPA or traditional asset allocation, makes it easier to identify true risk diversification rather than diversification by asset class label alone,” Carrano says.

Several U.S. investors have explored adopting total portfolio approach, including the Massachusetts Pension Reserves Investment Management Board and the New York City Retirement Systems, among others, but CalPERS will be the first in the U.S. to formally adopt TPA.