Episode summary
Stephen Gilmore – CalPERS’ Total Portfolio Approach (EP.486)
Capital Allocators with Ted Seides
· · Hosts: Ted Seides · Guests: Stephen Gilmore
Summary
Stephen Gilmore argues that CalPERS’ move toward a total portfolio approach is mainly a change in mindset: the portfolio should be organized around the fund’s overall objective, not around asset-class buckets. He says a reference portfolio gives the board a clearer risk anchor while making management more directly accountable for the actual construction and performance of the portfolio. In his view, that structure also reduces the procyclical behavior that can happen under traditional strategic asset allocation, when institutions cut risk in stress and add risk when markets are exuberant.
He draws heavily on his prior experience at Future Fund and New Zealand Super, where the same broad philosophy was implemented in different ways. New Zealand Super used a reference portfolio and a more systematic process, while Future Fund was more discretionary and did not use a reference portfolio. Gilmore says both were successful, but for different reasons tied to mandate, horizon, liquidity, and risk appetite. For CalPERS, he recommends a 75% equity, 25% bond reference portfolio with around 400 basis points of active risk, reflecting the fund’s funded status and growth orientation.
Much of the discussion focuses on implementation: shared language across public and private markets, liquidity and currency considerations, scenario analysis, and the need for better whole-of-portfolio data systems. Gilmore expects CalPERS to be more active in public markets, selective in private markets, and more systematic about dynamic asset allocation and stress testing.
Key takeaways
- Gilmore says CalPERS’ TPA should improve governance by making management, not the board, clearly accountable for the invested portfolio.
- He recommends a 75% equity / 25% bond reference portfolio with about 400 basis points of active risk for CalPERS.
- He argues that TPA helps avoid procyclical behavior by keeping risk appetite more stable through time.
- Gilmore says illiquidity, currency hedging, and scenario analysis matter more than asset-class labels when comparing investments across public and private markets.
- He expects CalPERS to be more active in public markets and only selectively active in private markets, with co-investments playing a bigger role.
Notable quotes
“the portfolio is built to try and achieve the ultimate objective”
“the management becomes more accountable”
“We've recommended 75% equity, 25% bond portfolio”
“One of the big advantages of having a total portfolio approach with the reference portfolio is you tend to have a more stable risk appetite through time”
How the episode opens
One of the things that has attracted value from the Kulpers experience has been a tendency to be too procyclical. If you think back to the time of the financial crisis, various assets were liquidated, risk was taken off. That was done in part because of concerns about liquidity.
Concerns that didn't need to be acted upon, but there was an information challenge at the time. Information on liquidity has improved greatly since then, but risk was taken down. If you're a long-term investor, that's exactly the time to be putting on risk.
The same thing has happened when markets more exuberant. Risk has been taken up. One of the big advantages of having a total portfolio approach with reference portfolio is you tend to have a more stable risk appetite through time and it'll be transparent if risk is taken up or down.
management now becomes more accountable because under a strategic asset allocation yes the management can make a recommendation to the board on the SAA the board adopts it and the question is who owns it because it's combined it's a joint thing with our proposed approach for the total portfolio the board adopts a reference portfolio and that corresponds to a particular amount of risk but it's the management that is using it initiative to propose the portfolio and to invest the portfolio the management becomes more accountable. It also becomes clearer how has the management team done relative to a simple off-the-shelf portfolio. I'm Ted Sides and this is Capital Allocators.
My guest on today's show is Steven Gilmore, the chief investment officer of CalPERS, which at $600 billion is the largest public pension fund in the US and one of the largest institutional pools of capital in the world. Steven joined Kalpers 18 months ago from a career spanning Wall Street, the IMF, and two of the most innovative sovereign wealth funds where he was chief investment strategist at Australia Future Fund and CIO at New Zealand Super Fund.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- total portfolio approach
- pension fund investing
- governance and accountability
- strategic asset allocation comparison
- implementation challenges
Companies and tickers mentioned
- CalPERS
- International Monetary Fund
- Australia Future Fund
- New Zealand Super Fund
- Thema
Watch the episode
Watch “Stephen Gilmore – CalPERS’ Total Portfolio Approach (EP.486)” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Capital Allocators with Ted Seides, this episode and its artwork belong to Ted Seides – Allocator and Asset Management Expert. Octagon is not affiliated with the show; this page is an independent summary.
