CIO's strategy could give portfolio managers greater flexibility
Stephen Gilmore, chief investment officer of the California Public Employees’ Retirement System (CalPERS), is weeks away from launching the most ambitious restructuring in the pension fund's history — a strategy he has spent decades preparing for.
On July 1, CalPERS will become the first US public pension fund to formally adopt a total portfolio approach (TPA), replacing the strategic asset allocation model the US$627.7 billion fund has used for decades. Under the outgoing framework, the board periodically allocated fixed amounts to individual asset classes. Under TPA, every investment decision will be evaluated on its potential contribution to the performance of the entire portfolio rather than to any individual bucket.
Total portfolio approach
Gilmore has championed the approach since his days at Australia’s Future Fund, where he spent nearly nine years as chief investment strategist. He later served as CIO of New Zealand’s Superannuation Fund from 2019 to 2024, where NZ Super returned 9.5% over five years, ranking fourth among 50 sovereign investors, according to consulting firm Global SWF. He took the CalPERS role in the summer of 2024.
“It’s about optimizing the whole portfolio rather than individual asset classes,” Gilmore said in an interview with Bloomberg News. “When you’ve got a whole lot of separate teams trying to do the best thing, it may not aggregate to the best thing for the whole portfolio.”
Gilmore has said he believes TPA could add an average of 0.5 to 0.6 percentage points of return annually over a passive reference portfolio composed of 75% global stocks and 25% bonds — translating into billions of dollars over time.
A WTW Thinking Ahead Institute peer group study of 26 asset owners, cited by CalPERS when it announced TPA adoption, found that funds using the approach outperformed those using strategic asset allocation by 1.3% per year over 10 years. Not all TPA adopters have posted strong results, however. Singapore’s GIC, which also uses TPA, ranked 40th among 50 large sovereign investors in a 10-year returns comparison through 2025, according to Global SWF.
Internal changes
The shift will also require a cultural overhaul within CalPERS itself. At a recent board meeting, the fund’s compensation consultant, Global Governance Advisors (GGA), outlined recommendations for moving away from siloed, asset-class-based performance evaluation toward a framework that more explicitly rewards decisions based on their contribution to the overall portfolio. The proposed changes could tie incentives more directly to collaboration and total fund results, rather than the performance of individual asset class teams.
GGA also recommended extending performance measurement beyond the current five-year horizon to better reflect the long-term nature of pension liabilities, and incorporating factors such as risk-adjusted returns, liquidity management, and cost efficiency. The consultant was expected to finalize its compensation recommendations in June.
To support the transition, Gilmore announced two key appointments. Anton Orlich was promoted to deputy CIO for private markets, expanding his remit from private equity to include private credit, real estate, and infrastructure. CalPERS also hired Derek Walker — previously head of research and total fund management at the Canadian Pension Plan Investment Board, where he spent nearly 18 years — as managing investment director for total fund portfolio management, effective July.
“I am delighted to welcome Derek to the team,” Gilmore said. “This is a critical position for the Investment Office, and it was important to hire an expert investor with a solid grasp of portfolio management and construction as we prepare for a Total Portfolio Approach.”
Billions of dollars at stake
The transition comes as CalPERS faces growing pressure to improve long-term returns and strengthen its funded status.
The pension fund serves approximately 2.4 million retirees, beneficiaries and active public employees across California. At the end of fiscal 2025, its funded ratio had improved to nearly 84%, up from 74% before Gilmore’s arrival. The fund posted an 11.6% return during Gilmore’s first fiscal year as CIO, its strongest annual performance since 2021.
Gilmore inherited a role with a difficult track record. His two immediate predecessors each left before completing two years on the job. Gilmore has now outlasted both.
The pressure attached to the role is not lost on those watching closely. Failure to meet CalPERS’ 6.8% return target would increase the financial burden on California’s local governments — money that might otherwise fund affordable housing, teachers, or health services.
“If this is a failure, I imagine the press is going to rail him,” said Theresa Taylor, president of the CalPERS board. “He has the utmost confidence that it’s going to work.”
Gilmore, for his part, has acknowledged the environment but said it will not distract him. “In the end you must focus on the job at hand and not be distracted by some of the unwelcome headlines,” he said.
