NEWS

CalPERS CIO lobbies for a total portfolio approach

By Muskan Arora

Making a case to move CalPERS’ portfolio as a whole, rather than asset class by asset class, Chief Investment Officer Stephen Gilmore attested for the nation’s largest pension plan to change its strategy.

Gilmore, heading the $519.6bn pension plan, believes that a total portfolio approach would improve the way the plan makes investments. It would also make the staff accountable for investments.

The total portfolio approach would be a significant change from the traditional strategic asset allocation.

Gilmore had originally presented this idea to the board last November, just after four months of joining as a CIO. His former employer NZ$76.7bn New Zealand Superannuation Fund also uses the same approach.

“There are benefits to doing that. Typically, that sort of approach at higher returns,” said Gilmore, speaking on a panel with other CalPERS division heads moderated by CEO Marcie Frost.

Gilmore also citied a survey of 26 large asset owners by Willis Towers Watson released in July, which noted that over the period of 10 years the funds using total portfolio approach outperformed asset owners using strategic asset allocation by 1.8%.


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The CIO expects that the total portfolio approach would add 50 to 100 basis points per year, which is “really meaningful.”

The NZ Fund earned a return of 14.90% for the fiscal year ended June 30.

Currently, within the current strategic asset allocation approach, the board signs off a specific portfolio and there are benchmarks for 11 different asset classes.

CalPERS’ portfolio is currently divided into five asset classes- public equity, private equity, private debt, fixed income and real assets, as per the March meeting agenda.

The pension plan made the latest changes to target allocations in the March meeting, which is 37% public equity, 28% fixed income, 17% private equity, 15% real assets and 8% private debt with a permissible range of 5% for leverage.

“The management team tends to basically stick with those targets,” Gilmore said.

“And so, the question is, who owns the targets because the team is recommending them. The board is adopting them. And the team tends to cling to them,” he added.

The total portfolio approach allows the board to monitor discretion to management risk appetite and then manage discretion around that.

Within the total portfolio approach, the ownership and accountability of investments will fall on the staff, said Gilmore.

CalPERS reported a net return of 9.3% for its 12-month period ending June 30, with the most exposure to public equity at 41.9% of the total portfolio.