One of the things that has attracted value from the Kelper's experience has been a tendency to be too

pro-cyclical. If you think back to the time of the financial crisis, various assets were liquidated,

this was taken off, that was done in part because of concerns about liquidity, concerns that

didn't need to be acted upon, but there was an information challenge at the time. Information on liquidity has improved greatly since then.

But risk was taken down. If you're a long-term investor, that's exactly the time to be putting

on risk. The same thing has happened when markets are more exuberant. Risk has been taken

up. One of the big advantages of having a total portfolio approach with the

reference portfolio is you tend to have a more stable risk appetite through time and it'll be

transparent if risk is taken up or down. Management now becomes more accountable because under

a strategic asset allocation, yes, the management can make a recommendation to the board on the SAA.

The board adopts it.

And the question is who owns it?

Because it's combined.

It's a joint thing.

With a proposed approach for the total portfolio, the board adopts a reference portfolio and that corresponds to a particular amount of risk.

But it's the management that is using its initiative to propose the portfolio and to invest

the portfolio. The management becomes more accountable. It also becomes clearer how has the

management team done relative to a simple off-the-shelf portfolio.

I'm Ted Seidies, and this is Capital Allocators.

My guest on today's show is Stephen Gilmore, the chief investment officer of CalPERS, which at $600 billion is the largest public pension fund in the U.S. and one of the largest institutional pools of capital

in the world.

Stephen joined CalPERS 18 months ago from a career spanning Wall Street, the IMF, and two of the

...