CalPERS moves to a total portfolio approach: What it means for VC and PE fund managers

CalPERS, the largest defined benefit public pension fund in the United States, has voted to adopt a “total portfolio approach” (TPA) from July 1, 2026, replacing the strategic asset allocation (SAA) framework it has used for decades. Under SAA, the board sets target weights for asset classes and measures success against a set of asset class benchmarks. Under TPA, investment decisions are evaluated by how they improve the portfolio as a whole, with a single reference portfolio of 75% equities and 25% bonds used as the primary performance yardstick.

For VC and PE fund managers, the important point is not the label. It is the operating consequences. A large allocator that organises capital around total portfolio outcomes tends to change how it underwrites, paces, measures and negotiates private market exposure.

The shift in allocator questions that matters to managers

Under an SAA regime, private equity often competes for a slice of a private equity bucket, with decisions framed around vintage year pacing, policy weights and peer relative benchmarks. Under a TPA regime, the framing shifts toward contribution to total portfolio outcomes.

That often translates into four changes in the questions managers hear.

1. What does this exposure do to the total portfolio in stressed markets, not just in the base case?
   Expect more attention to liquidity, cash flow behaviour and drawdown dynamics alongside long-run return targets.
2. What is the true economic exposure, not the label?
   Growth equity, venture, buyouts, secondaries, private credit, infrastructure equity and structured solutions can all be substitutes or complements depending on how they behave relative to the reference portfolio. Managers may be evaluated more like a source of specific risk premia and less like a member of a category.
3. How does this holding interact with the rest of the private book?
   Concentration by theme, factor exposure, geography and sponsor overlap can matter more than whether an allocation fits neatly into one bucket.
4. What is the portfolio level cost of carrying this exposure?
   In a total portfolio lens, fees are not only judged relative to private market peers. They are judged relative to what the exposure is delivering versus the reference portfolio and versus alternative implementation options.

Why the single reference portfolio changes the conversation

CalPERS also adopted a single reference portfolio benchmark, rather than maintaining many asset class benchmarks. For managers, this tends to pull the allocator conversation toward “value added” over a simple mix of public equities and bonds.

In practice, that can sharpen scrutiny in three areas.

Return justification: the allocator may want a clearer, repeatable source of excess return, not only a target IRR.

Risk explanation: the allocator may ask what risks are being taken that the reference portfolio does not already provide and whether those risks are paid.

Timing and path: even if long-term outcomes are attractive, interim volatility, cash flow timing and liquidity demands can carry more weight because they affect the total portfolio’s ability to rebalance and fund commitments.

This does not automatically reduce interest in VC or PE. It can also increase interest in strategies that are framed as portfolio tools, for example, secondaries as a pacing and liquidity lever, co-investments as a fee efficiency lever, or certain credit strategies as a way to shape total portfolio income and drawdowns.

Implications for fundraising, pacing and product design

A total portfolio framework often changes commitment behaviour more than it changes top-line allocation intent.

Pacing may become more adaptive. When public markets move sharply, a TPA allocator can choose to accelerate, slow, or redirect private commitments based on portfolio opportunity and liquidity, rather than waiting for an asset allocation reset. Managers should be ready for more dynamic conversations about commitment size and timing.

Secondaries and liquidity solutions can become more central. If staff have the flexibility to respond to market dislocations, tools that adjust exposure without waiting for primary fund timelines can matter more. That can lift the relevance of secondaries, continuation vehicles, NAV-based financing, structured equity and other forms of liquidity management. For GPs, it also means LPs may show greater interest in optionality, transferability and portfolio construction features built into fund terms.

Co-investment can get reframed. In an SAA world, co-investments are often a relationship feature. In a TPA world, they can be pitched as an implementation method to shape risk, concentrate into highest conviction exposures and improve net returns through lower fee load. That can increase the demand for fast decision-making, clearer underwriting and stronger data rooms, because the allocator is trying to act quickly across opportunities.

Portfolio-level risk budgets can become a bigger lever. Even if CalPERS does not publish risk budgets in the same language as some Canadian pensions, the logic of TPA typically pushes organisations to manage against risk limits, liquidity limits and total portfolio constraints. Managers who can articulate their strategy in those terms often fit more cleanly into allocator models.

What this change in due diligence and reporting expectations

A TPA allocator tends to need better data to compare unlike assets. That increases the premium on consistent reporting and defensible valuation processes, because staff must aggregate exposures across private and public holdings.

Managers should expect more emphasis on:

• Cash flow modelling at the strategy level and how it behaves under stress.
• Exposure mapping: sector, geography, factor tilts and concentration. For venture this can include themes that behave like long-duration equities.
• Valuation discipline and lag awareness. A total portfolio view makes it harder to ignore the smoothing effect of private valuations. Allocators often want to understand how reported marks relate to public market moves and what that implies for real-time risk.
• Faster, more standardised transparency. If the allocator is trying to adjust exposure quickly, slower reporting cycles become more costly.

In other words, the data and operating layer becomes part of the product, not a back-office detail.

Negotiation dynamics that can shift

When performance is judged against a reference portfolio, net returns and implementation efficiency can become more visible. That can influence commercial conversations.

Fee pressure can be expressed more as “net value added versus reference” rather than as “your peers charge less”.

Terms that affect liquidity and flexibility can matter more, for example, transfer provisions, key person triggers, recycling, extension mechanics and the ability to manage exposure through secondaries.

Capacity allocation may become more tied to speed and certainty of execution. If a large allocator wants discretion to move across opportunities, it will value managers who can underwrite quickly, run clean processes and support co-investment execution without friction.

How VC and PE managers can position for this allocator mindset

The practical adjustment is to translate the pitch from asset class identity to portfolio function.

For VC, that can mean clarity on whether the strategy is fundamentally long-duration growth equity, a source of convexity, a way to access specific technology waves, or a specialised skill-based alpha stream. It also means being explicit about dispersion, power law outcomes and cash flow timing in a way that fits portfolio-level planning.

For buyout and growth PE, it can mean clearer articulation of earnings resilience, downside management, operational levers and how value creation behaves when public markets reprice.

For secondaries, structured solutions and private credit, it can mean emphasising how the strategy shapes liquidity, pacing, income and drawdown management, not only headline returns.

Across strategies, the baseline expectation rises for data, governance readiness and the ability to communicate exposures in a total portfolio language.

Bottom line for managers

CalPERS’ move is a signal about how a very large allocator intends to organise decision making: fewer rigid buckets, more portfolio-level discretion and simpler top-line benchmarking.

For VC and PE fund managers, that tends to shift the centre of gravity toward portfolio contribution, liquidity and implementation efficiency and consistent transparency. The firms that can express their role in those terms, with data that stands up to portfolio aggregation, often become easier to underwrite in a total portfolio framework.