Page 3 – Top1000funds.com

Global markets have faced several defining moments in 2025. From the DeepSeek-driven reassessment of the US’ AI leadership to the Liberation Day tariffs which plunged global trades into uncertainties, these episodes have tested asset owners’ theses around geopolitical stability, the dominance of the tech sector, and geographical diversification.

Top1000funds.com has always been committed to going beyond the headlines and uncovering the fundamental shifts in how asset owners construct their portfolios and run their organisations. This year our readers continued to engage with in-depth Investor Profiles showcasing the thinking of global CIOs.

We now have readers at asset owners from 108 countries, with combined assets of $45 trillion, and we are also pleased to say that in 2025 we significantly increased our pageviews and our user base with our readers spending more time on our site.

Advocating for better practices

This year marks the end of the Global Pension Transparency Benchmark, which Top1000funds.com conducted in partnership with CEM Benchmarking annually over the past five years.

The GPTB measures and ranks the transparency of 75 asset owners from 15 countries, based on the factors of costs, governance, performance and responsible investment.

We’re incredibly proud of the project’s impact across the pension industry. Some topline figures: 92 per cent of funds improved their total transparency scores; all 15 countries in 2025 achieved better scores than they did five years ago; and Norway’s Government Pension Fund Global earned a perfect transparency score of 100, two years in a row.

But for leaders of transparency, the journey doesn’t stop here, you can read about how the GPFG and Canada’s CPP Investments will seek continuous improvements from here.

We continue with other key knowledge-sharing initiatives including the Asset Owner Directory and the Research Hub.

The Asset Owner Directory is an interactive tool to give readers an insight into the world of global asset owners. It includes key information for the largest asset owners around the world, such as key personnel, asset allocation and performance, and also includes an archive of all the stories that have been written by Top1000funds.com allowing readers to better understand the strategy, governance and investment decisions of these important asset owners.

The research hub links our events and our content with our Fiduciary Investors Symposium event series built on a close association with academia. For nearly 15 years we have been hosting the events on leading university campuses, giving delegates an immersive educational experience and challenging them to think bigger.

Now we have developed this research hub, which brings investors the academic papers written by the university professors who have been such an integral part of our programs. The research hub allows you to search academic papers and related Top1000funds.com content by the name of an academic or university, or by subject.

I have the pleasure of speaking with you – our global allocators and managers – every day and we know that despite the volatility and uncertainties, there’s never been a more exciting time to be an investor. The job of protecting members’ capital as a fiduciary has also never been more important.

Thank you for being a reader, a delegate, a sponsor or a speaker, for engaging with our content and for generously sharing your knowledge.

We’re going to do it all again next year and kick off our event calendar with the Fiduciary Investors Symposium in Singapore from March 24-25, 2026.

Hope to see you there.

Until then, happy holidays.

Produced in partnership with Scientific Infra & Private Assets

Global asset owners are expanding into infrastructure debt in a bid to lock in long-duration income, but the surge of money is also triggering questions about how to quantify risk in an illiquid and inherently opaque market.

The trend sits at the centre of a broader rotation from public to private markets as investors hunt for new sources of alpha and diversification. Infrastructure assets under management grew at a 19.7 per cent compound annual rate over the decade to 2024, with infrastructure debt expanding even faster at 23.1 per cent.

The shift is now visible in the growing number and size of mandates.

In September 2025, Dutch pension giant APG announced its first infrastructure debt allocation, awarding €425 million to an impact-focused mandate to Schroders Capital, and in May 2025, UK workplace scheme NEST seeded a new Europe-focused infrastructure debt fund run by IFM – in which it holds a stake – with an initial commitment of about €530 million.

Infrastructure debt has outperformed corporate and liquid bond peers at similar durations (yielding 4.9–5.1 per cent), with lower volatility (4.5–5 per cent) and with higher risk-return ratios (up to 0.98), according to data provider Scientific Infra & Private Assets (SIPA).

It is these type of risk-return characteristics that make private assets well suited to generating reliable income, according to NEST Invest chief executive Mark Fawcett.

“Private credit, infrastructure, etc – if you go to the right part of that asset class, you can generate the income [and] generate a superior pension income,” he said at the recent Fiduciary Investors Symposium at the University of Oxford.

Behind the veil of private infrastructure credit

However, the challenge of measuring risk and return becomes particularly pronounced within private market sub-sectors such as infrastructure debt.

Most infrastructure credit is project finance and so assessed by ratings agencies. It pushes investors towards an imperfect workaround: taking a listed bond proxy and adding an illiquidity premium.

“There is no like-for-like listed market for infrastructure credit – you just don’t have public bonds formed from wind farms,” says Abhishek Gupta, head of product at Scientific Infra & Private Assets (SIPA), the commercial arm of the EDHEC Infrastructure & Private Assets Research Institute.

Investment grade infrastructure debt and corporate bonds have a long-term monthly return correlation of 0.8-0.9 given shared macro drivers such as interest rates and credit cycles, but there are also periods when their performance decouples. For example, in the non-investment-grade segment, the 12-month rolling return correlation between infrastructure debt and corporate bonds turned negative between mid-2018 and late-2021, illustrating periods of decoupled performance despite exposure to shared macroeconomic drivers.

Another issue with benchmarking is the illiquidity premium itself, which is usually treated as a static number rather than a dynamic variable.

“This illiquidity premia also changes over time during the market cycles depending how active the market is,” Gupta says.

It can lead to fundamental risks, despite infrastructure debt consistently demonstrating overall low default probabilities.

“If you don’t assess the risk properly, you can’t estimate spreads in this market as effectively. That’s a problem if you’re not valuing infrastructure credit on your books fairly to the market.”

An assessment of private debt ratings using InfraMetrics® classifications compared against public credit ratings (such as S&P) for the same issuing entities where both private and public instruments exist, shows a consistent alignment over time.

On average, 13 per cent of private debt instruments classified as investment-grade by public agencies were assigned a non-investment-grade label by InfraMetrics® over the past five years.

Notably, in 2023 and 2024, alignment between the two rating approaches reached 100 per cent, coinciding with an observed decline in overall credit risk following the pandemic period.

A heterogeneous asset class

Between 2019 and 2023, the average one-year probability of default (PD) for infrastructure debt declined, stabilising around 1 to 1.3 per cent, while recovery rates have consistently remained above 75 per cent, according to SIPA. Yields are attractive at 4-5 per cent compared to riskier private infrastructure equity at 6-8 per cent.

But the distribution of risk is lumpy depending on lifecycle, leverage, and sector, according to Riazul Islam, senior quantitative researcher at SIPA.

“Assessing infrastructure credit risk requires a granular and forward-looking approach that captures both project-specific characteristics and broader macroeconomic conditions. The InfraMetrics® model incorporates time-varying factors such as the debt service coverage ratio (DSCR), leverage, cash flow available for debt service (CFADS), firm age, and benchmark interest rates (e.g., the risk-free rate). These inputs allow for dynamic recalibration of credit risk as both firm-level fundamentals and external environments evolve. This factor-based framework enables nuanced, data-driven evaluation of creditworthiness and supports informed decisions on restructuring scenarios or credit classification adjustments over time.”

Globally, energy and water resources have shown the highest average probability of default, reflecting commodity cycles, resource constraints, and higher operational volatility (1.91 per cent), while network utilities with monopoly-like models posted the lowest (0.19 per cent).

Young firms (0-5 years) were most vulnerable, with default probabilities around 1.8 per cent – often due to construction risks and lack of operational history – with mature stage firms dropping to just 0.6 per cent.

Accurate data is the key to finding new investment opportunities, accurately valuing existing investments, and to underpin capital market assumptions, Islam says.

“Infrastructure debt can be managed not as an illiquid, opaque niche, but as a mainstream credit allocation with measurable risk and return characteristics.”

More granular, project-level data is allowing investors to distinguish between fundamentally different sources of risk across lifecycle stages, sectors and capital structures, rather than treating infrastructure debt as a homogenous allocation.

Defence was once treated by many asset owners as a near-automatic exclusion but the sector’s resurgence since Russia’s full-scale invasion of Ukraine in 2022 has exposed a blunt reality for fiduciaries: the harder the screen, the greater the risk of missing returns.

Defence companies are only about 2.5 per cent of the MSCI World index, yet performance has been hard to ignore. The MSCI Aerospace & Defence index surged 49.25 per cent in the year to November 28, 2025 as the Russia-Ukraine war and a less reliable US ally prompted a surge in investment across the sector.

“There’s a slow acceptance – an openness now for everyone to allow them back in your portfolio,” says Aston Chan, chief investment officer, head of investment solutions at sustainability investment solutions and data provider Impact Cubed, which has been advising asset owners on the issue.

“It’s no longer Europe versus Russia. It has become Europe versus Russia without having the US as a reliable partner.”

Yet investing in the sector is anything but straightforward. Depending on cultural norms, geography and interpretations of fiduciary duty, one asset owner may frame defence investments as protecting democracy, while another sees it as a reputational risk amid accusations of profiteering from war.

Nordic investors embrace ‘total defence’ and revisit exclusions

Asset owners closest to the Russia conflict have been amongst the quickest to change their approach to investing in the defence sector. Their longstanding proximity to the Russian border has created the Nordic concept of “total defence” or “comprehensive security”.

It refers to a whole-of-society resilience mindset across military defence, civil preparedness, supply chains, cyber, information security and critical infrastructure.

Earlier this year, the €65.7 billion ($77.1 billion) Ilmarinen Mutual Pension – based in Finland which shares a 1300-plus kilometre border with Russia – incorporated this approach in revised principles for responsible investment.

“When the illegal invasion of Russia to Ukraine happened in 2022 we saw this geopolitical change and started to analyse what it means,” Karoliina Lindroos, head of responsible investments, Ilmarinen Mutual Pension, said at the Fiduciary Investors Symposium at the University of Oxford.

Its previous policy excluded many “dual use” companies that didn’t operate purely in the defence sector. For example, Finnish satellite-imagery company ICEYE initially began commercialising synthetic aperture radar (SAR) imagery to monitor hazardous Arctic conditions, but in 2022 began providing Ukraine with access to its capabilities.

Funds with a hard-line exclusion on defence can miss out on a key source of innovation outside of the much-heralded tech sector and with it, potentially higher returns as new technology diffuses across the economy.

“We thought that this type of binary policy may not serve us as well as it served us in the past, and we need more nuance. But at the same time, we needed to find the balance… could we get exposure to defence sector companies but at the same time, how do we consider the human rights risks that are inherently present in this sector?”

The fund now has a more flexible approach – with enhanced oversight – including the ability to invest in companies that manufacture “controversial weapons” if they are headquartered in NATO countries. The €66.7 billion ($78.3 billion) Finnish pension fund Varma also made a similar change regarding potential investments in controversial weapons.

It is one of the most common changes and largely focused on companies involved in the nuclear sector, according to Impact Cubed’s Chan, as opposed to companies making weapons banned under common international treaties such as anti-personnel landmines, cluster munitions, chemical weapons or biological weapons.

“In my experience, it’s largely cultural,” Chan says.

“A number of asset owners in France have excluded alcohol, but not nuclear weapons, and that’s saying something in a place that produces great wine. The French asset owners as a group never have – and in my opinion probably never will – consider nuclear controversial. Germany does. So depending on when my train crosses the border, the mandate changes.”

Israel–Palestine pushes screens in the opposite direction

But even as the Russia-Ukraine conflict has opened the door for a more inclusive approach to defence companies, the Israel-Palestine conflict has placed pressure in the opposite direction, with more investors taking a hard-line.

The Israel-Palestine conflict was a key driver behind the Avon Pension Fund’s recent re-evaluation of its defence sector investments – a hotbed issue among its members who tend to work at local unitary councils, universities, academies, town and parish councils, housing associations and charities.

Committee members of the £6 billion ($8 billion) local government scheme voted 8 to 2 in favour of the approach after a months-long member consultation led to a formal member survey. The result was lineball, with 42 per cent supporting divestment, 47 per cent favouring remaining invested, and 11 per cent unsure.

After the meeting, councillor Toby Simon – who also serves as chair of the Avon Pension Fund Committee – said committee members recognised it was a difficult and sensitive issue.

“The fund takes all member views seriously and, in reaching a decision, the committee has balanced those views with its wider fiduciary duty, legal advice, financial considerations, and the wider regulatory context with the evolution of pooling,” he said of the decision by the fund, which is one of ten within the Brunel Pension Partnership.

The Israel-Palestine conflict similarly prompted a defence sector review by the Sydney University of its endowment’s investments following campus protests related to the Middle East conflict. Unlike the Avon Pension Fund, Sydney University announced in November 2025 that it would divest from the sector in principle.

Norway’s NOK 878 billion ($87 billion) Kommunal Landspensjonskasse (KLP) – which serves employees at local municipalities and workers at health enterprises – in June excluded US industrials group Oshkosh Corporation and Germany’s ThyssenKrupp for selling weapons including armoured personnel carriers, warships and submarines to the Israeli military.

Karolina Malisauskaite, analyst – responsible investments, at Norway’s KLP said the exclusion was made under its existing criteria which prevents investments in companies that sell weapons to countries in conflict where there is a high risk of the end user violating international humanitarian law.

“In June, a UN special group of experts that were working came up with a press release listing companies that were involved in selling weapons to Israel, and there was documented evidence that those weapons were used in Gaza,” she said at the Fiduciary Investors Symposium at the University of Oxford.

“They came out saying companies selling weapons to Israel are risking being complicit in the war crimes and human rights violations.”

It raises another key risk for investors in the sector: defence companies largely have one customer – government – and they cannot control how any state ultimately deploys its weapons. When those systems are implicated in a conflict zone, the reputational fallout can quickly rebound on the fund.

When returns meet responsibility: the case for defence in a democracy

While the humanitarian aspect of war, and the close relationship that defence companies play, cannot be underestimated. the fiduciary rationale to invest in the high-performing defence sector is a drive underpinned by legislation in many countries.

“The main thing for the last 15 years is that nothing has performed better than tech,” Chan says. “But now, in the last year, I would say that the only thing that’s performed comparably or even better than tech in some places, is defence stocks.

“So if you were sitting on an investment committee in Europe and said, ‘We’re not touching the best performing assets,’ that’s an increasingly difficult position to defend, and opens you up to tough questions around societal resilience and fiduciary responsibility.”

In addition, aerospace and defence shares typically exhibit low correlation with the broader business cycle, meaning their exclusion would marginally increase overall equity risk, according to a paper prepared by the Avon Pension Fund. Unlike fossil fuel producers, defence companies do not face the same long-term risk of assets becoming “stranded” as economies decarbonise.

An increasing number of European asset owners are pairing this investment case with a broader social purpose. Some argue ESG can only be underpinned by democracy itself – and investments in the defence sector as part of protecting it.

Danish pension funds AkademikerPension, PensionDanmark and AP Pension joined forces in December 2025 to back ETNA, a newly formed defence-focused private markets fund. They framed the move as an act of social responsibility in the current security climate and an opportunity to deliver strong long-term returns for members.

Rikke Berg Jacobsen, head of ESG at AkademikerPension, said the decision followed an earlier softening of its approach to companies associated with European nuclear weapons programs (although ETNA cannot invest in nuclear weapons).

“We consider it our societal responsibility to provide capital support for the rebuilding of Danish and European defence,” she told Top1000funds.

“We can fulfil this responsibility in several ways. For example, we can invest in the large publicly listed dual-use and defence companies (the policy change created greater scope for doing so), we can support the Danish defence directly through public–private partnerships and we can invest in smaller, non-listed defence and resilience companies.

“It is in relation to the latter that ETNA is focused and given the rapid technological development within the defence sector, we actually believe this is where our members’ capital can have the greatest impact per krone invested.”

ETNA will focus on buyout and growth equity investments in European SMEs that contribute to strengthening Europe’s defence capabilities and resilience. Several other fund managers have explored launching defence-focused funds, particularly in defence-related infrastructure which does not attract as much risk of reputational damage for asset owners.

The investment opportunities are only likely to increase after NATO’s recent commitment to invest 5 per cent of Gross Domestic Product (GDP) annually on core defence requirements and defence- and security-related spending by 2035.

But as NATO members rearm and private capital is invited in, asset owners will be judged not just on whether they invest, but on how: the conditions they set, the transparency they demand, and the boundaries they are willing to defend – to members, regulators and themselves.

Alaska Permanent Fund Corporation (APFC), the sovereign wealth fund set up in 1977 to channel state royalties earned from the mining and oil industries into financial investments for future generations, has one-fifth of its $89 billion portfolio in private equity.

For the last 15 years, the fund has steadily pushed into private markets of which private equity is now central to its long-term growth and diversification. Yet Allen Waldrop, deputy chief investment officer, private markets, tells Top1000funds the current 18 per cent target allocation and annual deployment of $1.5 billion is likely to edge down in the next cycle given the size of APFC’s allocation to private markets.

Still, any significant move will be complicated by the fact that moving in and out of private markets is challenging.

Extracting from legacy GPs

Although APFC only actively invests with around 50 GPs across private equity and venture, the fund still has over 125 managers on the books. That includes GPs APFC has decided it is not going to re-invest with but which still run legacy funds committed to back in 2010 or 2015, explains Waldrop, speaking from Sacramento, where he oversees a team of six based in Anchorage, Juneau and Boston.

“We have managers that we have stopped investing with, but they don’t go away. There is legacy stuff hanging on in the portfolio. It’s hard to get them off the books.”

Old investments made in funds years ago contribute to unrealised gains. Of APFC’s $11 billion in unrealised gains reported in 2023, almost $6.3 billion (57 per cent) was from the private equity portfolio.

These funds also have a long life, and are still captured in the manager count, because GPs now extend the life span of funds through continuation vehicles. Managers have become frequent users of CVs given the challenges around traditional exits like IPOs or M&A, and CVs, explains Waldrop, allow managers to create a separate entity that they can sell and bring in third-party investors.

“CVs are not inherently good or bad – they can be useful tools in the right situation. But they can also be abused and used for the wrong reasons which means we have to look closely at what the manager is actually doing,” says Waldrop who brackets CVs with other criteria in fund documents like NAV loans that have also crept into the small print and are now commonplace.

“A fund might have borrowed in the past via subscription lines, but they are now borrowing money against the existing portfolio in a NAV loan with longer terms. Most agreements hadn’t contemplated this ten years ago,” he says.

A way out via the secondaries

APFC is prepared to sell in the secondaries market rather than invest in a continuation vehicle. Although Waldrop says he uses the secondaries market to trim the portfolio or raise cash, it’s not his preferred approach.

“We aren’t active sellers in the secondary market in terms of using it as a tool to manage the portfolio. But when we are presented with an opportunity to roll our interest in a continuation vehicle or take liquidity, we tend to take liquidity. We will only roll or invest after looking at what the transaction is, who the manager is and whether we like the company. We’ve taken opportunities to get liquidity through secondaries, but we are not really active sellers or buyers.”

He is even less enthusiastic about buying in the secondaries.

The abundance of capital in the market, and the presence of investors able to draw on tools APFC doesn’t have, like leverage or the ability to fashion highly structured transactions with deferred payments that ensure a particular return at a higher price, put APFC out of the bidding.

“We have a high return expectation for secondaries, and our cost of capital is different,” he says.

The arrival of interval funds with periodic liquidity, active buyers in the secondaries off the back of retail investors arriving in the space, is another reason to be wary.

“We’ve noticed the advent of interval funds that are aggressively buying secondaries.”

Managing the managers

Stuck with a large stable of managers, APFC evaluates its managers by rating them according to different categories in a focused strategy that Waldrop says prioritises the best.

“Good terms don’t save you from a bad investment. Our approach is to get in with the best managers – and then get the best terms we can.”

It’s an approach that APFC has particularly honed in venture where a wholly opportunistic strategy is shaped around openings with the best managers rather than trying to fill an allocation.

“We have some great managers in the portfolio now. If we can expand it we will, but we will only do it if we can access the best managers. We don’t see a need to just put money into venture.”

He believes writing smaller cheques in private equity also helps drive outperformance in an environment where fund sizes are creeping ever higher. Not so long ago, a $500 million fund was considered large. Now fund sizes stretch to $25-billion plus.

“Once fund sizes go beyond $15 billion it can be more difficult to outperform,” he says.

Writing smaller cheques also keeps investments simpler and more transparent given the many components that now characterise large funds.

“Generally speaking, we don’t need to make really large commitments so we can be more selective and find managers in the lower and mid-market that will outperform and who we can invest with on their third, fourth and fifth fund.”

Even though APFC avoids the competition of mega funds by carving a niche lower down the rung, he says competition to invest with the best managers remains fierce because the best GPs remain over-subscribed.

“There are numerous cases where we are targeting over-subscribed funds and trying to get a reasonable allocation. Those folks can drive terms,” he says, adding that fees haven’t moved in favour of LPs. Sure, there has been a slight decrease in management fees and other things that count as expenses, but only around the edges.

Private equity doesn’t allocate based on what is happening today

Another inherent challenge of the allocation is the fact that commitments are sometimes made long before the money is put to work. It means that the investment landscape has often changed by the time the money is finally drawn down.

It’s encapsulated in the shift in sentiment in the European buyout portfolio, for example. APFC focuses on mid-market and lower mid-market buyout opportunities in European growth equity where private equity funds poured targeting European companies on the basis they would expand into the US or Asia. Only that growth trajectory for these companies has changed because of de-globalisation.

“Tariffs make expanding into the US more complicated for European companies, which can no longer rely on expansion into China and other Asian markets either. It’s also one of the effects of deglobalization. Companies are having to rethink the landscape, and we are seeing more companies expand to be pan-European or regional,” he concludes.

The board of CalPERS has approved a momentous structural change that gives the $556 billion fund a single reference portfolio for judging performance, delegated authority to investment staff to construct the portfolio, and a simplified measure of success.

The fund’s chief investment officer, Stephen Gilmore, has been behind the fund’s shift to this approach which he says can add 50 to 60 basis points to portfolio returns.

In a long and detailed interview, Top1000funds.com editor Amanda White spoke to Gilmore about how a TPA mindset can add value, simplify accountability and open new opportunities for investments.

For the related and detailed story on the fund’s approach click on this story

How CalPERS aims to add 50-60 bps using TPA

Stephen Gilmore says he can add 50 to 60 basis points to portfolio returns by using a total portfolio approach. In a long interview, Amanda White spoke to the CIO of CalPERS about why a TPA mindset can add value, simplify accountability and open new opportunities for investments.

In November this year, the $556 billion CalPERS’ board approved a momentous structural change that gives the fund a single reference portfolio for judging performance, delegated authority to investment staff to construct the portfolio, and a simplified measure of success.

The headline news is that CalPERS has adopted a total portfolio approach, but beyond the headlines this mindset and implementation undertaking is a huge transformation, especially for a fund of its size.

Importantly, with TPA comes governance changes, including delegated authority to management that hones accountability and focuses staff on executing the one unified objective. For the board, it means letting go of ingrained decisions, such as setting the asset allocation, in return for more transparency and singular focus.

The ultimate benefit will be increased added value through a shared focus by all investment staff on the same goal.

As much as anything, TPA is a mindset, says Stephen Gilmore, chief investment officer of CalPERS, the largest pension fund in the United States.

And while under a strategic asset allocation approach there might be an intention for all investment staff to stick with the same objective, in practice that wavers when individual asset class benchmarks are introduced.

“They might start with the same objective, but what happens is people focus a lot on individual benchmarks, and there’s a danger they lose sight of the bigger picture,” he tells Top1000funds.com in an interview.

“The biggest advantage of TPA is mindset – you are actually building a portfolio that achieves the objectives [of the fund]. Everyone is pulling together to achieve the overall portfolio outcomes.”

TPA has been in vogue over the past few years, with stalwarts such as CPP Investments, New Zealand Super and the Future Fund believing it creates a framework for decision making and capital allocation beyond the boundaries of SAA. Others question the craze, simply saying isn’t TPA what we do anyway (see TPA just a new acronym for ‘common sense’.)

Gilmore says a lot of people will have their own definition of TPA, but his experience has been influenced by his tenure at the Future Fund, which he joined in 2009, and New Zealand Super, where he was chief investment officer before joining CalPERS. Both funds have used TPA to great effect, with strategic tilting, arguably only possible with a total portfolio view, the biggest value add at NZ Super over the past decade.

“I was very influenced from my early days at the Future Fund. At that time CEO David Neal always focused on the potential disadvantages of having intermediate targets, and lots of benchmarks, because the benchmark could potentially end up being the objective itself, but it’s not really the true objective,” he says.

“So for me, TPA is aligning the portfolio with that overall objective. Most people try to do that but depending on how you structure the governance you can end up inadvertently getting distracted from the big picture objective.”

For CalPERS -which returned 11.2 per cent to June 30, 2025, and 7.6 per cent over 30 years – the responsibility, or objective, is to pay the pensions of its 2.5 million members, and to make the pension fund sustainable. Changing the current structure, which includes 11 asset class benchmarks, and focusing on that overall objective is the essence of TPA. The fund is only 80 per cent funded, so any potential increase in returns will take the pressure off contributions.

“The idea is that [TPA] improves the likelihood of us doing that,” Gilmore says.

Active risk

A WTW Thinking Ahead Institute peer group study of 26 asset owners, quoted by CalPERS in its press release announcing TPA, showed the asset owners using TPA added 1.3 per cent in performance above those using SAA over 10 years.

“[That] 130 basis points is based on a small sample over a specific time, so I wouldn’t place too much reliance on that,” Gilmore says. “Conceptually however, if you’re optimising the portfolio as a whole rather than via asset classes, you should be able to do better by optimising for the whole.

“In terms of how much, I don’t think 130 basis points is likely. It’s ambitious. I’d like to be able to add somewhere between 50 and 60 basis points. It also comes down to how much active risk you take and what you expect to be rewarded. But I do expect there to be value add.”

While TPA is officially slated to come into effect on July 1, 2026, the implementation begins now with workstreams in place around strategy, risk budgeting, and communication.

“We have passed one milestone but there’s a whole period now of implementation,” Gilmore says.

The CalPERS’ board approved a reference portfolio of 75:25 equities:bonds and a limit of 400 basis points active risk around the reference portfolio, according to Gilmore.

“Our portfolio right now is equivalent to about a 72 per cent allocation to equities and the rest being government bonds or cash. The reference portfolio is around 75, so we are slightly below that at this point in time,” he says. “In terms of identifying where we want more or less exposure, the key thing is to have the understanding of all the underlying strategies and how they fit together, to identify if there are any duplicates or gaps. I have some views on that: it’s a process we are undertaking and it will inform us with respect to the portfolio as we go live post the first of July next year.”

Improved data and analytics – one of three priorities for Gilmore alongside TPA and culture since arriving in Sacramento in July 2024 to take the top job – is key to that.

“We embarked on a very big initiative to try and consolidate our data and analysis and try to improve the whole-of-portfolio focus. We need good data to be able do the analytics, to think about the exposures, to look at the factors. So that is an ongoing effort and I’m really pleased with how the investment team are engaging with our technology people, they see the benefits of improved data sets,” he says.

“That will allow us to have a better understanding of all the portfolio components – how they interact together and allow us to do things we perhaps find difficult to do right now.”

There are some obvious top of the house changes that the fund is looking at, including balance sheet and treasury management, and dynamic asset allocation. It has also recently done a lot of work on liquidity management, which has allowed it to take on less liquid positions with more confidence.

“I think there are things we can do there in the future that would add value – we have that potential,” he says of the treasury function. “With dynamic asset allocation there is stuff we can do there as well but to do that successfully you need the right governance arrangements in place.”

Changes to investments

While at the outset Gilmore doesn’t think there will be material changes to investment allocations, he believes CalPERS can lean into its natural advantages, which he identifies as scale, a long horizon and brand.

“Given our size and connections, we have a lot of information and we don’t always use that optimally,” he says. “Putting all that together there are lots of things… and you’ll see some areas we are already trying to use those advantages.”

One example is the fund’s approach to private equity, where it has embarked on a revamped strategy focused more on partnership relationships.

“This is paying dividends,” he says. “We have more focus on partnership relationships, also on co-investment because of that alignment with partners. We have also made some changes in terms of reorienting the focus more towards growth and venture and mid-market rather than large buyout. I think the team has done a good job on manager selection. All that plays into size and branding and horizon that I talked about.”

Gilmore sees stronger collaboration between teams, such as across private equity and private debt, as a great benefit in the change of mindset beyond an asset class patch and towards the total portfolio goal.

“Teams will be more collaborative than in the past because they are thinking about things at the total portfolio level and have a common framework for thinking about capital use and required rates of return,” he says.

“Ultimately everyone should be asking, is this is a good investment? Then if it is, you want it in the portfolio and it matters less exactly where it fits in the portfolio.

“The TPA approach gives us an advantage in thinking about investments that might not easily fit into a particular bucket and helps with integrating themes into a portfolio.”

Further, if everyone is focused on the single purpose portfolio outcomes, there is potential to have asset classes doing things they wouldn’t otherwise be doing, he says.

There are already a number of internal committees in place – such as a total fund management committee, which looks at the top down and an investment underwriting committee looking at deals of a certain size – but Gilmore sees the biggest challenge to the new structure is trying to encourage more collaboration.

“The most complicated thing is fostering that collaboration and thinking about how the governance arrangements work. In the past, if you ran a particular asset class you could go away and just allocate your capital and didn’t really need to check in with the other teams,” he says.

“So the big thing now is having to be more collaborative in the interests of building up a better overall portfolio. So we are doing a lot of work on that and also doing a lot of work on having a unified, or consistent approach to identifying the cost of capital.”

In addition, collaboration between teams is encouraged through individual performance assessment.

“When it comes to assessing the performance of people we look at various competencies – collaboration is one of those. Within the leadership of the investment team, we have explicitly called that out and given that more focus in terms of incentives people are eligible for. Collaboration and communications and mindset – we are all in this together trying to build the best portfolio.”

Accountability and delegated authority

No matter which way you try to get your head around the total portfolio approach, it all leads back to the same place: good governance. Nothing is implementable without it.

The board at CalPERS is now giving the investment staff the delegated authority to set the asset allocation and implement the investment strategy. In return, they have a more simplified measure of accountability in one benchmark (the reference portfolio) and can easily measure management’s value add.

“What stands out to the board is [that this approach] makes management more accountable, so there is more transparency in terms of this is what the reference portfolio has generated and how has management done with respect to their mandate,” Gilmore says.

“We are still figuring out what exactly gets reported to the board. We know we need to be more transparent and that we also need to spend more time on why we have adopted a particular strategy and how that has panned out.

“So I think the board will get a better quality of discussion. It’s the quid pro quo. The board is giving the management team more discretion to create the portfolio, so the management team has to be more transparent and accountable as a result of that.”

Gilmore is confident he has the right team internally, although two crucial positions – deputy CIO of private markets and managing investment director, total fund portfolio management – are currently vacant.

“One of the things with the TPA is it can be quite empowering. It involves change, but I’ve been really impressed by how people have responded to that change. There’s engagement and the team is really good at just getting it done – that is very rewarding. It’s a good place to be: nice people, capable people, with a really good mission.”

But he’s not one to rest on his laurels, and if you talk to his former colleagues at the Future Fund and NZ Super they’ll tell you Gilmore likes a challenge. He’s adamant the team needs to adopt a continuous improvement mindset.

“We are never there in terms of the final destination because we are going to be incorporating more information, more capabilities and the external environment will continue to change. TPA is not a case of ‘it’s done’. People are working hard.”

In a long and detailed interview, Top1000funds.com editor Amanda White spoke to Gilmore about how a TPA mindset can add value, simplify accountability and open new opportunities for investments.

Listen now.