CalPERS investment committee continues ALM work, explores 'total portfolio' reference options and timelines for implementation

The CalPERS Investment Committee on March 17 continued a multi-session asset-liability management (ALM) review focused on expressing the board’s risk appetite and moving toward a total-portfolio approach (TPA). Staff presented a set of reference portfolios (liquid equities and government bonds) as benchmarks for market risk and showed how prospective returns, volatility and conditional tail losses change as equity exposure increases.

Stephen Gilmore and Steven (presenters) summarized feedback from a January stakeholder exercise and noted a central tension: higher long-term expected returns from greater equity exposure versus increased risk of larger drawdowns in severe market scenarios. Presentation slides showed passive liquid mixes (50/50 through 90/10 equity/bond) and an estimate of incremental return expected from risk-equivalent asset-class selection (roughly 0.4 percentage points in the scenarios shown). Staff cautioned that those numbers are sensitive to market pricing and modeling assumptions.

The presenters illustrated risk concepts using economic scenarios (growth vs. inflation regimes): recessions (low growth, low inflation), stagflation (low growth, high inflation), booms (high growth, high inflation) and disinflationary booms. They explained that stagflation-type outcomes can be particularly damaging because both equities and bonds can fall together; in those scenarios a portfolio can experience a deeper, longer drawdown. The committee reviewed simulated roll‑forward outcomes at 5-, 7-, 10- and 20-year horizons and discussed how long realized returns might deviate from discount-rate assumptions over multi-year periods.

Committee members asked about how private-market allocations (private equity, private debt, infrastructure, real estate) were risk‑mapped into the reference-portfolio framework. Staff said that illiquid strategies are risk‑proxied (e.g., private equity mapped to a higher-than-1.0 equity-risk equivalent), and that the current 17% private-equity allocation explains most of the modeled value-add from active asset selection in the scenarios shown. Members also asked about liquidity trade-offs, implementation timing and how actuarial experience-study outcomes will be coordinated with a final portfolio decision.

Staff outlined a timeline that includes further stakeholder education sessions (webinars and committee briefings), an actuarial experience-study process with results expected in September and a proposed final board decision in November 2025. If the board approves a new approach, staff proposed implementing a live portfolio effective July 1, 2026. Staff also proposed ongoing stakeholder webinars (April, July, December) and additional committee sessions ahead of any final decisions.

Public comments during the session addressed private equity performance and labor risks at portfolio companies. Commenters asked whether long-dated private-equity contracts (some CalPERS contracts predate 2011) may lock the fund into underperforming terms and urged CalPERS to weigh reinvestment choices and manager selection carefully. United Food and Commercial Workers representatives also raised worker-safety and labor-law compliance risks at an Apollo-owned portfolio company, Cardenas Markets, urging the board to enforce private-equity labor principles with portfolio companies when appropriate.

No formal IC policy decisions were made at the March meeting; staff will return with more detailed modeling, implementation steps and stakeholder engagement materials in subsequent sessions.