CalPERS seeks higher funded ratio, shifts investment planning to ‘total portfolio’ approach

CalPERS executives told stakeholders on Jan. 15 that the system’s funded status has improved but remains below the board’s long‑term target, and they outlined changes in investment planning meant to close the gap.

Chief Executive Officer Marci Frost said the fund is “roughly 76% funded” and that CalPERS’ goal is to “get to that 90% and above,” a level the agency views as important to member confidence in benefits. Frost said investment returns, not contributions, have driven most of the recent improvement in funded status.

Why it matters: The funded ratio is a shorthand for whether pension assets are large enough to cover expected liabilities. When a large, multi‑billion dollar plan like CalPERS moves its portfolio or its risk target it can affect employer contribution rates, long‑term benefit security, and the fund’s ability to pay benefits during market downturns.

The fund’s new chief investment officer, Stephen Gilmore, described a deliberate move away from treating each asset class as an isolated “bucket” toward a continuous, total‑portfolio approach that compares forward‑looking returns and risk across asset classes so every dollar of new capital competes for the best risk‑adjusted use. “Think about investing the portfolio as a whole rather than thinking about asset class by asset class,” Gilmore said. He told stakeholders that organizations using this approach over a decade have generated materially higher returns in some studies and that CalPERS could reasonably expect incremental gains of “50 to 100 basis points” per year if implemented well.

Gilmore and Frost also emphasized private markets. Frost said CalPERS has built out its private markets team and sought better fee structures (for example, co‑investments with no management fee or carry). She told the audience that private markets remain an area where CalPERS expects to be a preferred partner for top managers.

Board risk appetite and process changes: CalPERS staff cited a recent board survey intended to clarify the trustees’ collective appetite for risk. Gilmore said that information will be central to asset‑and‑liability management work now underway and to how much discretion the board delegates to management. He emphasized improvements in data and technology to view the portfolio as a single, integrated set of exposures rather than a series of siloed targets.

Public Q&A highlighted downside risk and valuation questions. Retiree leader Margaret Brown and others pressed management for scenarios showing how long it could take the fund to recover after a major market correction; Gilmore said the answer depends on the event, portfolio mark‑to‑market features and illiquidity smoothing and that staff will study conditional losses (conditional value at risk) to produce clearer forward‑looking estimates.

Discussion vs. decisions: The forum presented strategies and analysis; there were no board votes at the event. Staff said work under way — the 4‑year asset‑liability management (ALM) cycle and a reassessment of strategic targets — will produce formal recommendations and possible changes to delegated authority later in the governance process.

What to watch next: stakeholders said they expect board deliberations and any changes to strategic targets to appear in future board packets and in the ALM materials presented to trustees.

Ending: CalPERS leaders framed the changes as long‑term and technical: improving the odds of beating the market will depend on people, technology and clearer governance, Gilmore said, while Frost urged members to follow upcoming ALM briefings to see how board risk preferences translate into portfolio design.