The California Public Employees’ Retirement System officially became the first U.S. pension fund to adopt a total portfolio approach (TPA), after its board voted in favor of the measure.
Starting July 1, 2026, the TPA will replace the fund’s current strategic asset allocation (SAA) model, which it has used to guide investment decision-making, noted a press release. During a recent Board of Administration meeting, the CalPERS’ investment team noted the move will increase transparency and give staff more flexibility to capitalize on a variety of market opportunities across asset classes.
Under the current SAA, the CalPERS Board periodically allocated a set amount to each asset class. Under the new investment framework, the focus will be on which investments can best contribute to the performance of the total portfolio, as opposed to achieving individual asset allocation targets.
“The CalPERS Board made history today by adopting the total portfolio approach after learning about its potential to deliver better returns for our members,” said David Miller, chair of the CalPERS Investment Committee, in the release. “We are the first pension fund in the United States to do this, and I believe it will give CalPERS staff the edge they need to make sound investment decisions.”
The vote was taken as part of CalPERS’ Asset Liability Management (ALM) cycle, a strategic planning process that occurs every four years and aims to balance the expected cost of future pension payments with anticipated investment returns.
However, with the SAA, the board had set asset allocation targets every four years and a mid-cycle check-in was also conducted to determine if those targets needed to change. Under the TPA, CalPERS’ investment team will now have the discretion to adjust their investment decisions and strategies according to market conditions.
During the meeting, the investment team shared a survey that found 26 large funds employing TPA saw their investments outperform those using the SAA model by 1.3% per year over a 10-year period.
“This is an evolution in our investment decision-making approach at CalPERS, and I commend the board for taking such a bold step,” said CalPERS’ chief executive officer Marcie Frost, in the release. “TPA encourages greater collaboration among the investment team, so that their collective wisdom is harnessed to judge investments based on their potential to benefit the entire portfolio.”
Additionally, the investment board also adopted a single benchmark, or reference portfolio, set at 75% equities and 25% bonds, which will be used to judge the performance of the portfolio CalPERS staff construct under the TPA model. The fund’s discount rate remains unchanged at 6.8%.
Related:
CalPERS’ proposed TPA simplifies benchmark, boosts transparency
