Stephen Gilmore – CalPERS' Total Portfolio Approach (EP.486) - Capital Allocators Recap
Podcast: Capital Allocators
Published: 2026-02-09
Duration: 58 minutes
Guests: Stephen Gilmore
Summary
Stephen Gilmore discusses the implementation of the Total Portfolio Approach at CalPERS, emphasizing stable risk appetite and enhanced accountability. He draws on experiences from his time at Australia Future Fund and New Zealand Super Fund to outline his vision for CalPERS.
What Happened
Stephen Gilmore, CIO of CalPERS, outlines the Total Portfolio Approach (TPA), aiming to stabilize risk appetite and enhance transparency. CalPERS, managing over $600 billion, is transitioning to this model, using a reference portfolio to foster accountability. Gilmore's experience in innovative sovereign funds informs this strategy, focusing on common language across asset classes and scenario analyses to manage economic shocks.
The episode highlights historical challenges faced by CalPERS, such as its pro-cyclical investment behavior, which Gilmore seeks to address through the TPA. The approach contrasts with traditional strategic asset allocation by emphasizing the portfolio's overall contribution to goals rather than isolated asset performance. Gilmore's tenure at AIGFP during the financial crisis underlines the importance of liquidity and stress testing, lessons he applies at CalPERS.
Gilmore recommends a 75% equity and 25% bond reference portfolio for CalPERS, with an active risk range of around 400 basis points. This recommendation aims to balance risk and return while maintaining a long-term focus on strategic objectives. The TPA also allows for investments that may not fit neatly into traditional asset class categories, enhancing flexibility and potential returns.
The governance structure at CalPERS is evolving to support the TPA, with an emphasis on collaboration across asset class heads. Gilmore points out that unlike Australian and New Zealand boards, US public pension boards often lack finance backgrounds, which can impact decision-making and strategy implementation. To mitigate this, CalPERS prioritizes communication and leadership assessments focused on collaboration.
Gilmore discusses the benefits of CalPERS' size in negotiating costs and forming partnerships, particularly in private equity. He also notes the trend of diversifying away from US assets due to their size and performance, exploring opportunities in global markets. This diversification is part of a broader strategy to enhance returns and manage risk effectively.
Technology and AI play a crucial role in CalPERS' investment processes, with tools like Ridgeline providing integrated, real-time data solutions. Gilmore emphasizes the importance of these tools in achieving better investment outcomes and adapting to market changes. He also reflects on his personal journey, contrasting his current role with his teenage dreams of working in wildlife service.
Key Insights
- CalPERS is adopting the Total Portfolio Approach (TPA) to manage its over $600 billion in assets, utilizing a reference portfolio with a recommended allocation of 75% equity and 25% bonds, and an active risk range of 400 basis points.
- The TPA strategy emphasizes the overall contribution of the portfolio to strategic objectives, contrasting with traditional asset allocation that focuses on individual asset performance.
- US public pension boards, unlike those in Australia and New Zealand, often lack finance backgrounds, prompting CalPERS to prioritize communication and leadership assessments to support TPA implementation.
- CalPERS leverages technology and AI, such as the Ridgeline tool, for integrated real-time data solutions to enhance investment outcomes and adapt to market changes.