Capital Allocators – Inside the Institutional Investment Industry

Episode 486: Stephen Gilmore – CalPERS' Total Portfolio Approach

Date: February 9, 2026
Host: Ted Seides
Guest: Stephen Gilmore, CIO of CalPERS

Overview

In this episode, Ted Seides sits down with Stephen Gilmore, Chief Investment Officer of CalPERS, the largest public pension fund in the United States, to discuss the theory and practical application of the Total Portfolio Approach (TPA). Drawing on Gilmore's extensive experience at Australia’s Future Fund, the New Zealand Super Fund, and now CalPERS, the conversation explores the mindset, benefits, challenges, and unique adaptations of TPA in large institutional settings. Gilmore provides both high-level philosophy and concrete implementation insights, covering topics from governance and accountability to data, scenario analysis, and managing liquidity and risk at scale.

Key Discussion Points & Insights

Stephen Gilmore’s Career Journey

[06:45-11:27]

• Gilmore recounts his diverse career across academic, public, and private finance, including experience at Chase Manhattan, IMF, AIGFP during the financial crisis, and pivotal roles at sovereign wealth funds.
• Key learning moments: integration across asset classes, trading dynamics beyond formulae, and lessons learned from financial crisis liquidity challenges.

"One of the lessons that came out, of course, was that no matter how good a person is, things can always go wrong. It was important to challenge, to stress test."
(Stephen Gilmore, 09:30)

Defining the Total Portfolio Approach

[11:27-15:38]

• At both Australia’s Future Fund and New Zealand Super Fund, a TPA emerged: focus on the portfolio as a whole rather than segmented asset classes.
• Subtleties exist: NZ Super relies more on systematic, stable risk-taking; Future Fund was more discretionary, reflecting different funding and payout timelines.
• The main TPA tenet: allocate capital to achieve ultimate objectives, using a reference portfolio as a benchmark.

"The most important thing is that the portfolio is built to try and achieve the ultimate objective...there's a competition for capital across the portfolio, across asset classes."
(Stephen Gilmore, 15:38)

Strategic Asset Allocation vs. Total Portfolio Approach

[15:38-18:09]

• Traditional SAA has rigid buckets with set targets; TPA seeks flexibility, allowing active risk to be deployed where most effective, while maintaining necessary guardrails and transparency.

"With that additional discretion comes the responsibility to be more transparent. We will be more transparent with the board in terms of the proposed portfolio and the rationale for various strategies."
(Stephen Gilmore, 17:05)

TPA at CalPERS: Genesis and Implementation

[22:12-25:35]

• Stephen’s initial months at CalPERS were devoted to listening and incremental changes, not an immediate TPA overhaul.
• Aligning compensation to total portfolio performance (vs. siloed asset classes) and improved liquidity management aided the move.
• Board education illustrated how a simple equities-bond reference portfolio would have tracked actual results—key in building support.

Skillsets & Governance

[23:57-26:13, 41:00-42:50, 43:04-44:48]

• TPA requires teams to develop a ‘common language’ for comparing opportunities across diverse asset classes (e.g., risk, expected return, liquidity).
• Board composition impacts governance: at CalPERS, management ultimately accountable for investment outcomes, with oversight from a less investment-centric board, unlike peer funds abroad.
• Emphasizes collaboration and cross-asset class communication as TPA enablers.

"We call out collaboration when people are assessed for performance. Collaboration is one of the key leadership competencies."
(Stephen Gilmore, 43:45)

CalPERS' Reference Portfolio & Risk

[25:35-26:13, 29:29-31:50]

• CalPERS’ reference portfolio: 75% equity / 25% bonds, with ~400bps active risk—growth-focused due to time horizon and funding status.
• Risk management uses stress scenarios, recognizing equity risk dominance and need for more diversifiers.

"What’s most important is to be thinking about how the portfolio performs under different scenarios...you cannot immunize the portfolio to all these different shocks because then you won’t generate any decent return."
(Stephen Gilmore, 30:26)

Asset Comparison & Marginal Investments

[32:44-35:13]

• TPA’s essential discipline: each new or incumbent investment must justify its place across the whole portfolio, not just versus peers.
• Sizing is linked to conviction, contribution to overall risk/return, and avoiding over-diversification at the asset class level.

Active vs. Passive at Scale

[37:47-40:14]

• Reference portfolios are passive, but TPA allows for targeted active bets when conviction and expected reward justifies risk.
• CalPERS’ scale advantages in private markets (especially with co-investment), but makes tapping smaller managers challenging—bulk of capital necessarily flows to larger entities.

"Given our scale, it's hard to make small investments because they don't move the tile. Some of these emerging managers can be outperformers. You want to take advantage of that."
(Stephen Gilmore, 40:14)

Technological Transformation & AI

[47:52-49:14]

• CalPERS is investing heavily in technology to aggregate data, unify views across asset classes, enable real-time reporting, and explore AI applications—though legacy data depth is a challenge.
• Streamlining reporting and making data accessible organization-wide is an ongoing, multi-year initiative.

"We can build information systems to capture more than we have in the past. That's an area where we should have a true advantage. Given our scale, given the connections, given the access that we have..."
(Stephen Gilmore, 48:40)

Scenario Analysis, Stress Testing, and Market Evolution

[51:25-52:37, 49:27-50:03]

• Regular, realistic stress-testing is vital (e.g., recent liquidity shocks exercise at CalPERS): cross-department participation fosters engagement and learning.
• Larger global allocators are seeking to diversify away from US market dominance, but practical barriers remain.
• Anticipates TPA adoption to grow where culture and systems support it; regulatory and national security issues will impact global asset flows.

Memorable Quotes & Moments

• Accountability through TPA:
  "It should improve accountability and those are all governance improvements."
  (Stephen Gilmore, 21:42)

• Organizational Alignment:
  "Some years earlier, Marcy had changed the compensation structure so that everyone got rewarded on the basis of the whole portfolio, not their asset class. That was quite important."
  (Stephen Gilmore, 22:55)

• Sizing and Conviction:
  "You want the sizing to relate to your degree of conviction in the investment. You're also going to be looking at the overall portfolio characteristics."
  (Stephen Gilmore, 35:13)

• Collaboration as a Core Value:
  "If you have that collaboration. That's a key thing. Having people that speak with one another aligned with the ultimate objective."
  (Stephen Gilmore, 43:04)

• Privileged Purpose:
  "We're investing for 2.4 million members. There's something about these asset owner roles that I enjoy...It's a privilege to be able to do this, particularly if you're doing it for a good cause."
  (Stephen Gilmore, 55:45)

Timestamps for Core Segments

| Segment | Topic | Start Time | |---------|-------|------------| | 00:00 | Opening reflection on CalPERS’ pro-cyclicality and governance | 00:00 | | 06:45 | Career origins and Wall Street experience | 06:45 | | 08:38 | Lessons from AIGFP and the financial crisis | 08:38 | | 11:27 | Birth of TPA at Future Fund and NZ Super | 11:27 | | 15:38 | Defining TPA, differences from SAA | 15:38 | | 17:05 | Implementing TPA guardrails at CalPERS | 17:05 | | 22:12 | Early days at CalPERS and stepwise transition | 22:12 | | 23:57 | Skillsets and the ‘common language’ challenge | 23:57 | | 25:35 | CalPERS’ reference portfolio structure | 25:35 | | 29:29 | Dashboard/data aggregation for decision making | 29:29 | | 30:26 | Risk scenarios and diversification | 30:26 | | 32:44 | Active risk: additivity and asset class roles | 32:44 | | 37:47 | Active vs. passive management choices | 37:47 | | 40:14 | Board composition & governance impact | 40:14 | | 43:04 | Collaboration and culture for TPA | 43:04 | | 47:52 | Technology and AI in asset management | 47:52 | | 51:25 | Realistic stress test exercise example | 51:25 | | 54:14 | Five- and ten-year portfolio vision | 54:14 | | 55:45 | The personal purpose behind the role | 55:45 |

Closing Reflections

Stephen Gilmore’s vision for CalPERS centers on governance transparency, accountability, and a systematic, objective-driven approach to portfolio construction. The TPA is offered not just as a technical framework but as a philosophy—a way to align incentives, break down silos, and bring sharper discipline and innovation to asset allocation at scale. Gilmore’s insights bridge theory and practice, serving as a guide for other institutional allocators considering similar strategic transformations.

Notable Quotes

• "It's a continual process. We've spent a lot of time working on liquidity analysis, the analytics there...now I can see a lot of reports on my phone." (Stephen Gilmore, 48:01)
• "I would like to think that we have a greater range of diversifiers within the portfolio. I would also like to have a more systematic, dynamic asset allocation process in place." (Stephen Gilmore, 54:14)
• "I like the purpose. It's quite meaningful. We're investing for 2.4 million members..." (Stephen Gilmore, 55:45)

For listeners and non-listeners alike, this episode offers an in-depth, accessible look at institutional investing’s cutting-edge evolution and the leadership thinking behind one of the world’s biggest pools of capital.