The California Public Employees' Retirement System — CalPERS, which manages roughly $556 billion for 2 million public employees — voted unanimously in November 2025 to scrap its Strategic Asset Allocation model in favor of the Total Portfolio Approach, or TPA. The change goes live July 1, 2026. It gives investment staff broad discretion to allocate across the entire portfolio and measures performance against a single 75/25 equity-bond reference portfolio, rather than benchmarking each asset class against its own target. The board called it historic. I'd call it overdue and underbuilt — the right framework in the wrong institution, at least for now. The fund is carrying $153 billion in unfunded liabilities and has a 71% loss on its last major discretionary bet to answer for.
I've spent 30 years in private equity, private credit, and hedge funds advising institutional and ultra-high-net-worth investors. TPA is a legitimate framework. New Zealand's Superannuation Fund pioneered it. Canadian pension giants CPPIB and OTPP have run variants for decades with strong results. Managing a portfolio as a unified risk budget rather than a collection of siloed allocations makes investment sense. The question is whether CalPERS has the governance culture and institutional discipline to execute it honestly.
History suggests caution. In 2007, CalPERS committed $468 million to the Clean Energy & Technology Fund, a private equity vehicle riding the Cleantech 1.0 wave. The fund is now worth $138 million — a 71% loss, $330 million destroyed; $22 million in management fees paid out. CalPERS has not publicly explained the losses. That investment was approved by a board of elected union representatives and gubernatorial appointees. They were following a political signal, not an investment thesis.
CalPERS repeated the pattern. In November 2023, it committed to deploying $100 billion in climate solutions by 2030. By June 2025, nearly $60 billion had been allocated — all while carrying $153 billion in unfunded liabilities. The fund doesn't break out returns on its climate sleeve versus the broader portfolio, so beneficiaries and taxpayers have no clean way to evaluate whether the allocation is earning its keep. That governance gap predates TPA and won't close automatically when the new model launches.
The funds’ recent returns have been strong. An 11.6% return in fiscal year 2025 pushed the funded ratio to roughly 79%. But taxpayers still paid $23.4 billion to CalPERS in 2025, mostly toward the unfunded liability. One strong equity year against a structurally underfunded plan is not a governance clean slate.
TPA does carry a real operational advantage: speed. Under the old Strategic Asset Allocation model, rotating portfolio exposure — reducing duration ahead of a rate move or rotating from U.S. equities following a credit dislocation — required board approval at a quarterly meeting. Markets don't hold opportunities for committee calendars. TPA gives professional staff the authority to move when conditions change. CalPERS CIO Stephen Gilmore argues the model can add 50 to 60 basis points annually — $2.8 to $3.3 billion per year on the current fund. Add AI-assisted analytics replacing manual research workflows and you get a leaner, faster operation. That's the right direction. Professionals who understand markets should be making market decisions.
The accountability risk runs in parallel. Under the old model, even an unsophisticated trustee could verify that the equity sleeve was within target ranges. TPA requires evaluating factor exposures, tracking-error against the reference portfolio, and the risk contribution of illiquid private assets — at a fund simultaneously raising its private markets target from 33% to 40% of assets. More capital in self-reported, illiquid valuations benchmarked against a liquid reference creates structural opacity. The benchmark becomes both a yardstick and a cover.
Three structural reforms should accompany the July 1 transition. Quarterly attribution reporting by asset class with full fee disclosure — not just total-fund performance relative to the reference. An independent annual fiduciary audit published for taxpayers and beneficiaries, not merely reviewed by the board. And annual oversight hearings by California's Joint Legislative Audit Committee, tied to funded-status progress and governance quality. Public pension funds carry taxpayer-backed credit. That backing requires accountability that is structurally enforced, not just rhetorically endorsed.
The CETF loss unfolded over 18 years without public accountability. TPA expands staff discretion and reduces daily board visibility simultaneously. That combination demands better governance infrastructure, not less of it.
CalPERS' new model might work. With the right professionals, real independence, and AI-assisted analytics sharpening the decision layer, TPA can outperform the rigid allocation approach it replaces. But disciplined risk management, honest accounting, and accountability verifiable by someone other than the fund's own staff are what actually pay pensions. Until those are built into TPA in a durable way, the $153 billion tab keeps running.
