By Muskan Arora
The $553.4bn California Public Employees’ Retirement
System has begun its journey of adopting a new total portfolio approach, with a
presentation exploring key risk trade-offs and selection of its risk appetite.
CIO
Stephen Gilmore, at the recent meeting, explained to the board about getting an
educational session on total portfolio approach, following which the board
would be equipped for the selection of its risk tolerance by November.
Gilmore’s
intention behind these sessions is to make the board more “comfortable”, so as
to have a revamped portfolio by July 2026.
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The
board’s risk appetite would include selecting passive reference portfolio of
stocks and bonds with active risk limits, meaning “management’s discretion to
pursue value-adding and risk-mitigating strategies” which would also include a
new asset class, as stated by the CIO.
The
reference portfolio wouldn’t include alternative asset classes including
private equity and real estate. The reference portfolio would showcase risk tolerance
without including the actual and target portfolio allocations.
Active
portfolio would be expected to outperform the reference portfolio by using alpha-generating
strategies and other additional asset classes.
At the
March meeting, staff will showcase what the portfolio’s performance would be
relative to the reference portfolio.
Previously,
the pension plan has matched the risk by assigning equity and bond risk levels
to approximate the board’s risk tolerance. The pension plan seems to agree with
70/30 portfolio.
