CalPERS Moves to Total Portfolio Approach for Agile Investment Strategy

The California Public Employees Retirement System (CalPERS) held a significant webinar on July 18, 2025, focusing on Asset Liability Management (ALM) and the transition to a total portfolio approach. The meeting aimed to discuss strategic asset allocation and how it can enhance investment performance while reducing costs for local governments.

The session began with an overview of CalPERS' current asset allocation, which totals approximately $550 billion. The discussion emphasized the importance of a total portfolio approach, which seeks to coordinate various asset classes—such as stocks, bonds, private equity, real estate, and infrastructure—rather than treating them in isolation. This method aims to be more agile and responsive to market opportunities, ultimately improving investment performance and reducing employer costs.

A key point of discussion was the distinction between traditional strategic asset allocation and the new total portfolio approach. The latter introduces the concept of a reference portfolio, which serves as a benchmark for performance evaluation. This reference portfolio is akin to a passive investment strategy, allowing the board to hold the investment office accountable for performance relative to this benchmark.

The meeting highlighted that the current funding status of CalPERS stands at 79%, with a goal of reaching 100% funding. Achieving this target would alleviate the financial burden on local governments by reducing unfunded liabilities. The board was informed that the anticipated long-term return from the reference portfolio is projected at 6.2%, with the potential for additional returns through active management strategies, aiming for an overall target of 6.8%.

Liquidity management was also a critical topic, with assurances provided that CalPERS is focused on maintaining sufficient cash reserves to meet pension obligations. The investment office has implemented strategies to ensure liquidity, avoiding the need to liquidate long-term investments prematurely.

In conclusion, the webinar underscored CalPERS' commitment to enhancing its investment strategy through a total portfolio approach, which is expected to yield better performance and lower costs for local governments. The board will continue to evaluate this approach, with the aim of improving transparency and accountability in reporting investment performance.