CalPERS investment staff presented a first reading proposal to adopt a total‑portfolio approach to investing that would replace multiple asset‑class benchmarks with a single reference portfolio and an explicit active‑risk budget. The staff recommended a 75% equities / 25% bonds reference portfolio, a 400 basis‑point limit on total active risk and no change to the fund’s 6.8% discount rate. The board will take a final vote in November after stakeholder engagement and an additional public webinar.

The recommendation, presented by Michelle Nix and Steven Gilmore of the investment office and accompanied by actuarial modeling from Scott Durandall, would formalize a reference portfolio that serves as the baseline “passive” benchmark and aggregate the fund’s discretion to deviate from that passive mix into one explicit active‑risk limit. “The first recommendation will be to adopt the total portfolio approach to investing,” Michelle Nix told the committee during the presentation.

Why it matters: Staff argued the change improves clarity and accountability by making clear the baseline portfolio and the amount of risk delegated to management. Under the proposal, any decision to deviate from the reference portfolio would consume part of the 400 basis‑point active‑risk allocation; management expects an operating range of roughly 250–350 basis points and used 300 basis points in its return projections. Modeling shown to the committee projected higher expected returns for the reference portfolio plus assumed active‑risk return pickup (roughly an extra 60 basis points at the modeled 300 bp active risk), but also greater volatility and a wider range of contribution outcomes for more aggressive portfolios.

What staff told trustees: Steven Gilmore described the change as an evolution in governance and said the 75/25 reference portfolio is intentionally simple and easy to compare against. Actuarial Office team member Scott Durandall reviewed Monte Carlo simulations (5,000 draws) for alternative reference portfolios and showed that higher‑risk reference mixes increase the chance of large one‑year employer contribution spikes and larger downside funded‑ratio outcomes in severe scenarios. Based on the models, staff recommended the 75/25 portfolio with a 6.8% discount rate, noting the actuarial office would revisit assumptions in the normal ALM mid‑cycle cadence if warranted.

Board discussion and next steps: Trustees asked for clarifications on monitoring correlated risks across asset classes, the frequency of strategic planning, and how ESG and labor principles would be embedded under a TPA. Staff said they expect annual updates to the three‑year strategic plan, quarterly reporting of actual allocations and active‑risk usage, and continued cross‑team ESG integration work. The staff plans stakeholder webinars and a December 4 webinar to explain implementation details. If the board adopts the TPA in November, staff intends a go‑live date of July 1, 2026, while continuing preparatory work in the interim.

Ending: The recommendation was presented as a first reading; the committee did not vote on policy changes. Trustees and stakeholders will have a further opportunity to give feedback before the final vote in November.