- CalPERS, the largest US pension fund, is shifting to a total portfolio approach, integrating decisions across its $600B asset base.
- Chief Investment Officer Stephen Gilmore, with experience from New Zealand’s sovereign fund, is leading the initiative, seeking to beat the fund’s 6.8% return target.
- The success or failure of this shift carries major consequences for public budgets and may influence how other US pensions invest.
Breaking Rigid Allocations in Public Pensions
CalPERS, the nation’s largest pension fund at $600B in assets, is taking a rare leap in institutional management. According to Bloomberg News, Chief Investment Officer Stephen Gilmore will steer the system away from the typical wall between asset classes to prioritize overall portfolio results—a strategy known as total portfolio approach (TPA).
CalPERS is the first major US public pension to officially commit to TPA, following adoption by several sovereign wealth funds globally. Traditional US pension practice has separated teams by asset class, setting strict benchmarks for each. Gilmore’s initiative, starting July 2026, challenges these barriers amid persistent funding gaps and intense public scrutiny.
Get Smarter about what matters in CRE
Stay ahead of trends in commercial real estate with CRE Daily – the free newsletter delivering everything you need to start your day in just 5-minutes
The Details
CalPERS is not entering this experiment lightly. As of March 2026, the fund held only 84% of the assets it needs for long-term pensions, up from a low of 74% in 2024. Success under Gilmore—who joined in summer 2024 after leading New Zealand’s $50B sovereign fund—has been tangible. CalPERS posted an 11.6% return for the June 2025 fiscal year, its strongest performance since 2021. However, its 10-year annualized return—6.2% as of 2024 per Wilshire’s Trust Universe Comparison Service—remains near the bottom among large US funds.
The new TPA program directly ties manager decisions to system-wide performance. Instead of incentivizing asset-class silos, teams are being asked to collaborate and flex into the best opportunities, regardless of allocation. Gilmore claims the approach could add 0.5 to 0.6 percentage points to annual returns versus a passive 75% equity/25% bond reference mix.
When Asset-Class Silos Hold Back Returns
US pension funds—CalPERS included—typically benchmark teams separately for stocks, bonds, private equity, and alternatives. This bucketed setup can deliver discipline and diversification but risks missing cross-portfolio opportunities or duplicating risks. That challenge has become more visible as many institutional investors reduce real estate exposure while rebalancing portfolios toward other asset classes. According to Bloomberg’s reporting and Global SWF data, other major TPA adopters have posted mixed results over time. Singapore’s GIC, another TPA user, ranked just 40th among 50 global funds for 10-year performance from 2016–2025.
Market critics argue that CalPERS’ chronic underperformance is linked to its management churn, fee-heavy alternatives, and insufficient transparency. Margaret Brown, a former board member, has called for an independent inspector general. CalPERS officials, by contrast, point to improved private equity performance, lower relative fees, and a top-5% finish among large US funds over the past two years.
Why It Matters
The TPA experiment puts CalPERS at the center of a live debate over how massive institutional portfolios should be run. For California taxpayers and public employees, the stakes are immediate. If the fund fails to hit its 6.8% return assumption, municipalities could face tens of billions in cost increases to backstop the pension, money that might otherwise support core services like education and health care. Conversely, if TPA delivers even a modest pickup in returns—say, the 0.5% per year Gilmore projects—that could translate into billions in eased fiscal pressure and a more secure retirement for the fund’s 2.4 million beneficiaries.
Sector specialists are closely watching for ripple effects. Should CalPERS demonstrate significant outperformance using TPA, other large US funds could follow, bringing more coordinated allocations and capital flexibility to public markets, private equity, and real estate. Eric Friedman of Aon Investments cautions that a holistic portfolio view depends more on leadership discipline than any set allocation model, but acknowledges that formalizing TPA might temper the return-chasing instincts that beset many institutions. CalPERS’ move comes as the pension industry grapples with persistent underfunding and a challenging rate environment.
What’s Next
CalPERS will launch its TPA strategy in July 2026, fully changing how it manages and benchmarks its $600B portfolio. Board members will track total portfolio performance against a 75/25 reference mix. They will also monitor results across individual asset classes. Meanwhile, Gilmore faces growing pressure to sustain early gains and answer critics. Public watchdogs and labor groups continue to scrutinize the strategy. The fund will evaluate private and alternative investments on their portfolio-wide impact, not just standalone returns.
However, weak early results could quickly test confidence in TPA, especially during market volatility. Other pension funds will watch closely. The outcome could influence how institutions managing trillions allocate capital.
