CalPERS investment committee approves Total Portfolio revisions, adopts new policy guard rails

The California Public Employees Retirement System’s Investment Committee approved a major restructuring of its investment policy framework on Thursday, voting to adopt a Total Portfolio Approach (TPA)–aligned set of documents intended to shift decision-making from an asset-allocation table to a reference portfolio and active‑risk governance.

The committee approved the second reading of the revised total-fund policy and related affiliate policy changes after staff presented structural updates and the investment consultants from Wilshire and Makita described the modeling and oversight changes. The motion to approve the second reading was moved by David Miller and seconded by Teresa Taylor; the reading passed on a roll-call vote with members present voting in favor and one member excused.

Why it matters: The new structure replaces a prescriptive strategic asset allocation with a reference portfolio and an explicit active‑risk limit (staff described a 400‑basis‑point active‑risk cap), intended to give staff flexibility to tilt the portfolio while keeping a board-level guardrail. CIO Stephen Gilmore told trustees the new dashboard will display the reference‑portfolio comparisons, funded‑status measures, active‑risk usage, and other forward‑looking indicators to improve transparency.

What staff said: Amy Deming, who led the policy presentation, said the revisions codify the governance guardrails needed to implement the TPA and that the documents preserve existing investment beliefs, divestment policy language, and governance principles while consolidating and simplifying how strategy is described. “We updated the umbrella policy to clearly reinforce pension sustainability as a strategic investment objective and aligned it with asset‑liability management,” she said.

Consultants’ view: Tom Tote of Wilshire told the committee he and his colleagues had reviewed the active‑risk modeling and assumptions and found the board’s proposed oversight and modeling methodology reasonable, adding they were comfortable with the recommended benchmark and reporting changes. Steve McCort of Makita said staff had worked closely with their firm to ensure private‑market risk controls are managed in the new structure.

Questions and concerns: Several trustees asked detailed questions about the role of the consultants in monitoring active risk — for example, what ‘‘oversight’’ of assumptions and correlations would mean in practice — and about how board principles such as community or stakeholder consent (FPIC language) would be integrated into private‑market due diligence. Staff said those processes would remain part of manager diligence and deal‑level reviews and that the dashboard will provide additional transparency into how active risk is being used.

Next steps: Staff said the TPA is scheduled to take effect July 1 and that additional policy items tied to affiliate trusts will come back for first and second readings in September and November as part of the transition cycle. Trustees were also told that the dashboard and reporting updates will be rolled out to provide clearer metrics on active risk and funded‑status probabilities.

What didn’t change: Staff and consultants emphasized that investment beliefs (including governance and sustainability principles) and the divestment framework remain in place; the policy changes are intended to change structure and reporting rather than core fiduciary objectives.

The committee adjourned after approving the policy package and moving to consider affiliate ALM items and program reviews later in the day.