CalPERS consultants tell trustees Total Portfolio Approach would require governance and incentive changes

Global Governance Advisors (GGA) told the Performance, Compensation and Talent Management Committee on April 8 that adopting a total portfolio approach would require changes to governance, culture and incentive programs at the California Public Employees' Retirement System.

The GGA presentation, given by Peter Landers and Brad Kelly, summarized international examples of TPA and listed 10 considerations trustees should evaluate — from risk‑adjusted metrics and reference portfolios to liquidity needs, fee structures and behavioral safeguards. “When you start looking at the adoption of a total portfolio approach, I think it’s important for the board to note that it will likely require changes to both CalPERS culture and incentive compensation going forward,” Landers said.

GGA said TPA shifts decision‑making away from fixed strategic asset allocations toward more dynamic portfolio oversight and closer collaboration across asset groups. The consultants cited pension funds that have adopted variants of TPA — New Zealand Super, Australia’s super funds, Canada Pension Plan Investment Board and OMERS — and said those organizations emphasize whole‑portfolio objectives rather than separate asset‑class benchmarks.

The presentation framed ten incentive‑design questions trustees should consider if the board moves toward TPA: whether to measure relative versus absolute performance; whether to lengthen or shorten multi‑year performance windows (the board’s current long‑term incentive uses a five‑year absolute measure); whether to include risk‑adjusted metrics such as Sharpe or Sortino ratios; how to value liquidity and cost efficiency; and how to build safeguards against unintended consequences. GGA emphasized that many of these items would be “subjective” to some degree and could require stronger qualitative evaluation of teamwork, agility and information‑sharing among investment staff.

Trustees asked about sequencing and timing. GGA recommended a staged process: a board decision on TPA by November 2025, implementation planning and metric updates through April 2026, and final incentive plan updates for fiscal year 2026–27 to be presented in June 2026. GGA said they would return with final recommendations in June 2025 on incentive metrics if the committee provided feedback now.

Committee members stressed the need to see how the new investment model performs in practice before fundamentally redesigning compensation. Trustee Bridal asked whether the board should await evidence that culture and operating changes have taken hold before implementing new pay structures; Kelly and Landers said the timing could be phased and that the consultants can phase in adjustments if the board prefers. CIO‑level inputs — referenced in the presentation as “Steven” — and Chief Executive Officer Marcy Frost were identified as central to design and implementation.

The committee did not take action on TPA at the April meeting. GGA and staff will return with more detailed proposals and modeling if the board signals interest in the November decision window.