William Melhado of the Sacramento Bee reports CalPERS reports one of the strongest years of investment returns over the last decade:

California's largest public pension system reported on Monday a net investment return of 14.8% over the last 12 months, one of the strongest years in the last decade.

Bolstered by a particularly successful year in the stock market, the California Public Employees' Retirement System now has 85% of the money to cover its future pension benefits, CEO Marcie Frost announced Monday morning at the board of administration's offsite meeting in Monterrey. The reported returns are still preliminary and will be finalized in the coming months.

The massive pension fund's assets totaled more than $637 billion as of June 30, the end of the fiscal year. The strong returns, which were led by public and private equity, were higher than last year's returns of 11.6% and the assumed rate of return of 6.8%.

The retirement system's funded status has improved since 2016, when the Public Employees' Retirement Fund had less than 70% of the money needed to pay retirement benefits.

"An 85% funded level is great compared to where we started, but we're not quite there yet. It's not full funding," Frost said during her opening remarks. "We cannot afford to become complacent or assume the market will always keep rising just because it did yesterday."

Improved status is result of several changes

Frost, who has been with CalPERS for ten years, said that the system's improved financial standing is a result of several changes, including decreasing the discount rate and diversifying the fund's portfolio.

CalPERS' discount rate, which is the fund's assumed rate of return, was lowered to 6.8% in recent years.

"These were hard decisions because they meant employers and members would pay more into the retirement and would not be receiving additional benefits for those increased costs, but they were necessary decisions to support the pensions rightfully promised to our public employees for their years of service," Frost said.

Of the pension fund's asset classes, public equity performed the best with a preliminary return of 24% over the last fiscal year. Behind that asset class, private equity investments resulted in a 17% return.

"We have greatly benefited from the fact that the stock market has continued to rise. Our global equity portfolio still makes up the largest single category of the fund," she said.

The fund's other investment categories, private debt, real assets and fixed income, reported investment returns of 11%, 6.3% and 5.9% respectively.

'Tuning out the noise'

Frost thanked the board for "tuning out the noise" related to CalPERS' private equity investments, which have come under criticism from stakeholders and California lawmakers in recent years. Those critiques included a recent independent investigation, funded by a group of CalPERS retirees, of the fund's private equity investments. That report blamed the pension fund's underfunded status on systemic "governance failures" and paying Wall Street managers too much money to handle private equity investments.

In her comments, Frost singled out a bill that died earlier this session, which would have required public pension funds in California to disclose information about its investments in private equity. She said that legislation would have hampered CalPERS' ability to invest in private markets and could have led to increased costs for members and employers.

"Investing in the private markets gives us potential to earn higher returns while spreading our risk from the often volatile public stock market," Frost said.

Darcy Song of Top1000Funds also reports CalPERS’ public and private equity reset shapes performance:

CalPERS is continuing to reap the benefits of an overhaul in its public and private equities programs three years ago as strong performance in both asset classes powered a double-digit return for the fund in the last financial year.

Public and private equities are the biggest allocations at the $637 billion fund, representing 36.8 per cent and 19.3 per cent of the portfolio respectively. They returned 24.1 per cent and 17 per cent respectively in the year to June 30, CalPERS said in an annual update. It delivered a 14.8 per cent return for the financial year on a fund level.

Both programs underwent significant transformation in 2022 in a bid to improve performance and CalPERS said their benefits continue to manifest in the portfolio.

In listed equities, CalPERS has been redeploying capital to active strategies since the end of 2022, said Steve Carden, investment director in the fund’s global public equities department overseeing active equity strategies, in a presentation to the board on Monday.

CalPERS’ active equities portfolio now represents 40.8 per cent of the public equities book, with its market value surging from $15.8 billion at June 2022 to $109 billion at May 2026. The active portfolio’s excess return against the benchmark also meaningfully lifted from a five-year average of 52 basis points in 2022 to 131 basis points in 2026.

Carden said the success of the program came from deploying to markets and strategies where active management has a proven edge.

“The success rate outside of the US is much higher and one of our focuses is to be in less efficient markets, so that means international and emerging markets. But we do have a couple of strategies that are global in nature, so they have the US as well,” Carden said.

Active equity strategies are organised into three buckets: quantitative enhanced index, multi-factor – both of which are internally developed and managed – and traditional active, which has quant and fundamental strategies.

“In the traditional active we have externally sourced strategies but we implement some of them internally with models so that we can have lower cost and operational efficiency,” Carden said.

CalPERS also emphasised its strict approach to active manager selection, which managing investment director Simiso Nzima said led to “a running quip [within the team] that it’s just as hard to be selected as one of our managers as it is to get into Ivy League colleges”.

“We’ve looked at the numbers, the selection rate for Ivy League colleges is about 5.2 per cent, and the selection rate for the active equity team is about 5.3 per cent,” he told the board.

Standardisation of the manager selection process a few years back means CalPERS was able to compress the selection timeline from 12-18 months before the overhaul to around nine months now, Carden said.

Another edge the fund says it has is a strong internal team that can negotiate favourable fee structures with active managers.

“We do feel like we pay fair when the performance, excess return is strong, but we want to pay as little as possible when it’s not,” Carden said.

“We’ve moved towards more base plus performance structure with very low base fees. Last year, we can in at 34 basis points overall for the [active portfolio], contrasting that with 60 basis points or more for off-the-shelf fees.”

Private equity switch-up

CalPERS initiated a “turnaround” of the private equity program in 2022 underpinned by “manager selection, lower-cost structures, and diversification” – a plan which is bearing fruit, the fund said in the annual update. In a presentation to the CalPERS board in June, Anton Orlich, deputy CIO of private markets, said the fund’s PE roster spans 134 managers and 421 funds across different strategies. Buyout is the biggest component, representing over half (57.3 per cent) of the program, followed by growth (31.6 per cent) and venture (6.4 per cent).

Orlich said that an important pillar of the turnaround has been to set consistent PE commitment pacing of about $16 billion per year to avoid a replay of the so-called “lost decade” of PE, referring to the period of 2009-2018 where CalPERS had less than $8 billion in annual PE commitment.

CalPERS is also pivoting towards a total portfolio approach and since July 1 has officially adopted a reference portfolio of 75/25 equities to bonds. A key feature of TPA is the so-called relative value principle where investments in different asset classes need to compete for capital against the total fund objectives.

But chief executive Marcie Frost said the PE program is likely to be somewhat insulated from capital competition, flagging at an industry conference this February that the PE team needs to continue to “operate more independently” and protect its ability to commit.

Another aspect of the overhaul is the diversification away from large buyout strategies, reducing the percentage it represents in the portfolio from 46 per cent in September 2022 to 33 per cent in March 2026 mainly via secondary sales.

Through secondary purchases and new commitments, the combined percentage of growth and venture in the portfolio lifted from 20 to 38 per cent through the same period.

Elsewhere in the financial year results, private debt delivered an 11 per cent return, while real assets and fixed income delivered 6.3 per cent and 5.9 per cent respectively. Annualised returns for the five-year period ending June 30, 2026 stood at 6.83 per cent; the 10-year period at 8.57 per cent. 

Mona Dohle of Net Zero also reports CalPERS ‘on track’ with £100bn climate commitments, CIO says:

CalPERS reported an investment return of 14.8% for the past fiscal year, largely driven by robust returns on equities and private market holdings. Private equity alone delivered a net return of 24.1% over the past year.

In 2023, CalPERS pledged to commit $100bn to climate investments whilst aiming to halve its carbon footprint by the end of the decade. Speaking from the fund’s annual offsite meeting, CIO Stephen Gilmore told Net Zero Investor that some $60bn had been deployed so far and that the fund remained on track to meet its targets.

Among other initiatives, CalPERS has committed $5.8bn of its portfolio to its customised public equity Climate Transition Index strategy. In private markets, CalPERS has invested in vehicles including TPG Rise Climate (private equity and infrastructure funds), West Street Climate Credit (Del) LP, Generation IM Sustainable Private Equity Fund II (A), B Capital Climate Fund I, LP, Copenhagen Infrastructure Partners V USD Feeder SCSp, Brookfield Global Transition Fund II-B, LP, and others.

Private equity transparency push

Speaking at the fund’s annual offsite meeting, CEO Marcie Frost attributed the strong performance largely to a change in how the fund approaches private equity. “Shifting our focus from traditional buyout funds to venture growth and mid-market funds, and making more co-investments in private markets, gives us the potential for higher returns, truly driving growth and job creation in California, the nation and the world,” she said.

However, she also cautioned against moves to increase disclosure levels for private market allocations. “This year, our discipline has been put to the test; we had to push back against efforts to put politics over pensions.”

Her warnings were directed at Senate Bill 1319, the Private Equity Sunshine Act proposed by Democratic Senator Dave Cortese, which would have required Californian pension funds to disclose greater details on fees and asset performance.

“We will always stand strong for transparency, but we will resist efforts like Senate Bill 1319, which would have seriously affected our ability to invest in private markets and would have led to billions of dollars in increased costs for employers and members,” Frost stressed.

Total Portfolio Approach

CalPERS’ latest performance data arrives as the fund embarks on a shift towards a Total Portfolio Approach (TPA), replacing its traditional Strategic Asset Allocation (SAA) model.

While the shift could potentially facilitate greater flexibility to invest in private markets, Gilmore said it would not have a direct impact on climate allocations. “You should think about that climate strategy, sustainable investment strategy, as being integrated within the total portfolio approach. So you shouldn’t really see much of a change there. All the investments we make in those areas should justify a place in the portfolio,” he said. 

Adam Ashton of Cal Matters also reports CalPERS just had one of its best years in a decade. Why it matters to taxpayers:

California’s largest public pension fund just had a banner year, riding a soaring stock market to record its second consecutive double-digit annual investment return.

The California Public Employees’ Retirement System announced Monday that it gained 14.8% on its investment portfolio in the 2025-26 financial year, more than doubling its target of 6.8%.

CalPERS Chief Executive Officer Marcie Frost in remarks to the board described the return as the fund’s best year since 2014, excluding 2021 when markets rebounded from a crash caused by the COVID-19 pandemic in 2020. 

“Our team has maintained a disciplined approach to building the health of the pension system, and our improved funded status shows this effort is paying off for our 2.4 million members,” she said in a written statement.

CalPERS finished the budget year with a portfolio valued at $637.1 billion — about $80 billion more than a year ago.

The investment return is an important number to California government agencies because they have to cough up more money to cover losses when CalPERS comes up short.

CalPERS is considered underfunded because its assets are worth less than what it owes in total to the people who earn and receive benefits through it. Its assets are now valued at 85% of what it owes to members.

That number is also a milestone in CalPERS’ recovery from its losses during the Great Recession. CalPERS’ assets were worth about 68% of what it owed to members a decade ago before it began a set of policy changes that effectively required government agencies and public employees to pay more toward their pensions.

The earnings report comes at a moment when public safety unions are urging lawmakers to boost retirement benefits for police and firefighters for the first time since former Gov. Jerry Brown scaled back retirement perks with a 2012 law. The big number could make legislators more confident in saying yes to the unions and modifying Brown’s pension reform law.

Some groups have been urging CalPERS to simplify its investment strategies in the interest of making more money faster, which would relieve some pressure on government agencies and taxpayers. That criticism came up in last year’s CalPERS election, where several unsuccessful candidates characterized the fund as underperforming.

Two former CalPERS board members now involved with an organization called the Retired Public Employees Association — Margaret Brown and J.J. Jelincic — have focused on the pension fund’s stakes in private equity, investments that sometimes include high fees and uncertain values. They supported a failed bill in the Legislature this year that would have compelled CalPERS to disclose more information about those investments. 

“These are very good results, however you need to think about how you got there,” Jelincic told the CalPERS board. “You expanded high risk private equity and you moved into higher risk segments within that asset class.”

Last year the CalPERS board adopted a so-called total portfolio approach that empowers Chief Investment Officer Stephen Gillmore to make decisions more quickly and in the interest of the overall fund rather than specific asset classes — such as private equity or real estate. The policy directs CalPERS to keep 75% of its portfolio in equities and 25% in bonds.

Frost and Gillmore view private equity as an important segment in the portfolio. The pension fund formally opposed the legislation that would have required more transparency about private equity, which the fund projected would have cost it billions of dollars in missed opportunities.

“Investing in the private markets gives us potential to earn higher returns while spreading our risk from the often volatile public stock market,” Frost told the board.

CalPERS earned a 17% return on its private equity investments last year and a 24% return on its investments in stocks. The S&P 500 climbed by 21% over that timeframe.  

On Monday, CalPERS issued a press release stating it posted a 14.8% preliminary investment return for fiscal year 2025-26: 

SACRAMENTO, Calif. — Strong performance in both its public and private equity portfolios helped the California Public Employees’ Retirement System (CalPERS) achieve a preliminary net investment return of 14.8% for the 12-month period ending June 30, 2026, the pension system reported Monday.

The 2025-26 fiscal year return exceeded both last year’s 11.6% performance and the assumed 6.8% rate of return set by the CalPERS Board of Administration. It is also CalPERS’ highest mark in five years and represents a four-year trend of higher year-over-year results.

The Public Employees’ Retirement Fund (PERF) had $637.1 billion in assets as of June 30 and a funded status of 85%, up from 79% at the end of fiscal year 2024-25.

When Chief Executive Officer Marcie Frost arrived at CalPERS in October 2016, the PERF was 68% funded. The funded status represents the total assets in the fund compared with the pension benefits it is obligated to pay in the future.

“Our team has maintained a disciplined approach to building the health of the pension system, and our improved funded status shows this effort is paying off for our 2.4 million members,” Frost said. “We will maintain this focus as we build toward full funding, resisting external distractions that could increase costs or force us to forgo investment returns.”

In recent years, CalPERS has increasingly diversified its portfolio into alternative investment categories such as private equity and private debt, which have the potential to deliver higher returns than the overall market while spreading risk.

Public equity produced the highest preliminary return with a 24.1% gain, reflecting a strong finish for the stock market. Private equity achieved a preliminary return of 17%.

Private equity returns have risen steadily since a 2022 strategy overhaul by Anton Orlich, who in June was promoted from Managing Investment Director of Private Equity to Deputy Chief Investment Officer for Private Markets. Orlich refocused CalPERS’ private equity strategy on manager selection, lower-cost structures, and diversification toward companies in venture, growth, and middle-market buyout.

This month, CalPERS launched its Total Portfolio Approach, approved by the board in November 2025. It gives the investment team more flexibility to evaluate each investment strategy for its potential to benefit the entire fund, rather than sticking to set allocations for each asset class.

“Our total portfolio approach will mean we will be focusing more on the best investments for the whole portfolio level, rather than just for any individual asset class,” said Chief Investment Officer Stephen Gilmore, who previously oversaw a similar approach at the New Zealand Superannuation Fund. We will regularly and publicly measure the performance of our active approach compared with a standard reference portfolio of 75% global equities and 25% U.S. Treasury bonds, ensuring that we are really delivering value for our members.”

Preliminary total fund annualized returns for the five-year period ending June 30, 2026, stood at 6.83%; the 10-year period at 8.57%; and the 20-year period at 6.81%.

Asset Class (by size)

Net Rate of Return (in percent)

Public Equity

24.1%

Fixed Income

5.9%

Private Equity1

17.0%

Real Assets1

6.3%

Private Debt1

11.0%

1Private market asset valuations lag one quarter and are as of March 31, 2026.

CalPERS investment and finance staff and outside experts will review the portfolio’s performance in the next few months to finalize the fiscal year returns for 2025-26.

The ending value of the PERF for fiscal year 2025-26 will be based on additional factors beyond investment returns, including employer and employee contributions, monthly payments to retirees, and various investment fees.

Once finalized, the fiscal year-end market value of CalPERS’ assets is used to set contribution rates for the State of California and school districts in the 2027-28 fiscal year and for contracting counties, cities, and special districts in the 2028-29 fiscal year.

Under the current provisions of the CalPERS Funding Risk Mitigation Policy, the board is provided the option of lowering the discount rate when investment returns exceed the established 6.8% discount rate. The Board is scheduled to consider the matter in September.

Please review the annual investment report (PDF) for a comprehensive overview of the fund’s assets.

About CalPERS

CalPERS is the largest defined-benefit public pension in the U.S., with 2.4 million members. Since 1932, CalPERS has provided retirement security for state, school, and public agency employees who invest their life’s work in public service. In 1962, CalPERS expanded its services to include health benefits and now offers quality health plan coverage for more than 1.5 million members and their families. 

CalPERS' 2025-26 comprehensive financial report isn't out yet. It will be made available here.

The results for the last fiscal year are impressive, driven by public and private equities, which gained 24% and 17%, respectively. 

I'm going to briefly go over the main points.

First, congratulations to Marcie Frost and her team because they've been getting criticized left, right and center (the politics impacting CalPERs is truly pathetic).

The most important result is the funded status of the Public Employees’ Retirement Fund (PERF), which now stands at 85% and is up significantly from 68% when Marcie Frost arrived at CalPERS in October 2016.

That wasn't all due Marcie Frost and her team's strategy. Strong returns in public and private equities, and especially the increase in rates since the pandemic, have really helped all pension funds get a much better funded status in recent years.

Still, no doubt that CalPERS is on the right track in terms of its funded status and that really is what matters most.

Now, as far as the results, they were impressive but you need to dig deeper to really understand them.

36% of the portfolio is in Public Equities, which gained 24%, and 19% in Private Equities, which gained 17%.

And that 17% return in Private Equity caught my attention as it trounces what Canada's large pension funds have delivered in that asset class.

But the devil is in the details.

J.J. Jelincic is right to note: “These are very good results, however you need to think about how you got there. You expanded high-risk private equity and you moved into higher risk segments within that asset class.”

CalPERS made a deliberate choice to lower its Buyout component to 57% and increase Growth to 32% and Venture to 6% (Note: this massive shift happened in 2022 when former CIO Nicole Musicco was CIO).

In other words, almost 40% of its Private Equity program is now in growth equity and venture cap, which is very aggressive for a pension fund of its size.

Most of the large Canadian pension funds have a lot less in these sectors (on average, 2-3% in venture cap and 10-15% in growth equity max).

That explains why CalPERS generated a 17% return in PE last fiscal year, but when the tide turns, these sectors will get decimated.

As far as Public Equities, I'm impressed with the 24% absolute return and the active portfolio’s excess return against the benchmark, which lifted from a five-year average of 52 basis points in 2022 to 131 basis points in 2026. 

But even there, I'd need to drill down hard to see what risks they are taking, whether they are overweight momentum factors, and how much is in emerging markets and in what sectors?

I used to drill elite hedge funds for a living so I know one thing: high returns do not come without high risk

Again, I'm not criticizing CalPERS performance and I hope they can continue delivering strong returns above their actuarial target, but it seems like there is a lot more risk than meets the eye in their portfolio.

"Well, Leo, Norway's sovereign wealth fund gained 15.1% in 2025, isn't that the same?"  

No, it certainly isn't. NBIM doesn't invest in buyouts, growth equity or venture cap.

It has a clear objective as a sovereign wealth fund and has done scenario analyses to model downside risks.

Again, CalPERS is a pension fund, and while its total portfolio approach sounds nice, in practice, the weighting in that PE portfolio will swamp everything else. 

Anyway, the good news is CalPERS' funded status has drastically improved and I remember they got board approval to use leverage, so they can manage liquidity more tightly when the downturn occurs.

The bad news is there is a lot more embedded risk in that portfolio than I'd be comfortable with if I were sitting on that board. 

Below, CalPERS CEO report from a month ago.You can watch a more cent clip on Instagram here.

Over the past few years, EPI research has highlighted the broad economic and social benefits of investing more in public education. New York City legislators are currently considering one such investment: boosting pay for paraprofessionals in public education by $10,000 annually.

Paraprofessionals—who work under the supervision of licensed teachers to provide focused instructional and behavioral support to students—provide crucial services and play a critical role in educating students with disabilities. Research has demonstrated that paraprofessional educators are key contributors to effective schools.

Despite this, the current pay of paraprofessionals is too low, and clear labor shortages of paraprofessionals have developed in public schools around the country—including in New York City. Paraprofessionals working for the New York City Department of Education have annual earnings ranging from $33,000 to $54,000. EPI’s Family Budget Calculator shows that a single adult with no children in New York City needs to earn $83,262 to afford a modest but adequate standard of living. An additional $10,000 would move those salaries closer to—but still well short of—a living wage. 

One clear sign that the city could benefit from greater public investment in paraprofessionals is the fact that New York City now spends more than $1.5 billion each year on special education due process cases. These costs arise when families successfully demonstrate that the public school system has failed to provide the services required under federal law, requiring the city to cover the cost of remedies such as private school enrollment (the most well-known subset of these are often referred to as “Carter cases”).

Boosting pay by $10,000 for the roughly 25,000 full-time paraprofessionals is estimated to cost the city about $244 million in 2027, roughly 15% of what the city spends on special education due process cases. While no single policy will eliminate these due process case costs, investing in the workforce that delivers crucial special education services can certainly strengthen recruitment and retention and increase the share of families of children with disabilities who are satisfied with the quality of education and support that is being provided in public schools. In turn, more families of special education students choosing to remain in public schools will reduce expenditures on due process cases, helping defray the cost of paying paraprofessionals closer to a living wage.

Finally, we should note that while the state and city of New York would benefit greatly from increased investment in the public sector, this investment obviously requires revenue. This revenue should come from those most able to provide it: high-income households and rich corporations. The quality of services provided to the city and state will depend crucially on whether or not policymakers are willing to raise the revenue needed to make these investments.

Barbara Shecter of the National Post reports Carney investment summit attracts global asset manager backed by Australian super pensions:

A multibillion-dollar global investment manager backed by some of Australia’s largest pension funds will be leading a delegation to the Canada Investment Summit this fall, aiming to pour as much as $10 billion into Canadian infrastructure over the next decade if conditions are right.

IFM Investors Pty Ltd. (IFM), which specializes in infrastructure and manages more than $242 billion on behalf of institutional investors, including AustralianSuper and the Australian Retirement Trust, confirmed a delegation will attend the summit to be hosted by the federal government in Toronto on Sept. 14 and 15.

“IFM is coordinating the participation of the Australian Super Funds to the summit,” Gian-Carlo Peressutti, executive director of public affairs at the global asset manager, said in a statement. 

Prime Minister Mark Carney met directly with some of Australia’s largest pensions when he travelled to the country in March as part of a wider trip to strengthen trade and alliances with middle powers.

At the same time, the Australian institutional investors signed a sweeping cooperation agreement with nine Canadian pensions, including the Canada Pension Plan Investment Board (CPPIB) and Public Sector Pension Investment Board (PSP), which then partnered with the federal government to host the investment summit. 

Since then, senior IFM executives have said Australian funds are anxious to beef up an “underweight” investment position in Canada, while echoing Canadian pensions in decrying a long-standing lack of opportunities to invest in the kind of large-scale infrastructure assets they seek globally. They have also cited regulatory “frictions” they hope the Carney government and the provinces will address. 

With the first-of-its-kind summit in September, Carney has promised to convene the world’s largest investors, including top CEOs, entrepreneurs and prominent global business leaders, to attract new investment that advances Canada’s nation-building projects in areas such as mining, energy and security while creating jobs and boosting the economy.

His government has pledged to “catalyze” $1 trillion in total investment in Canada over the next five years from public, private and institutional partners. In his first budget last November, his government announced $280-billion worth of capital investments and incentives intended to generate additional investment, including $315 billion in infrastructure alone. 

The budget also announced that airport privatization was under consideration, a tantalizing prospect for pension funds that was bolstered by the government’s spring 2026 pledge to create a $25-billion sovereign wealth fund that will be fuelled in part by “asset recycling,” or selling established cash-generating government-owned assets, such as airports, and using the proceeds to pay for priority infrastructure projects.

During Carney’s visit to Australia in the spring, Kyle Mangini, IFM’s global head of infrastructure, said in a statement that the asset manager was prepared to invest up to $10 billion in Canadian assets over the next 10 years under the “right policy settings.”

He also said in the Financial Review on March 4 that Canadian airports meet the size and scale of assets sought, along with toll roads, should they become available, and infrastructure for critical minerals projects such as rail links and power networks.

IFM has made a couple of investments in Canada in recent years, both in partnership with Canadian institutional investors: Enwave Energy Corp. was acquired in 2021 with the Ontario Teachers’ Pension Plan and it also took a 37.5 per cent stake in 2018 in Vancouver-based GCT Global Container Terminals, which operates out of West Coast ports and is jointly owned by Teachers’ and British Columbia Investment Management Corp.

IFM opened its first Canadian office last December in Toronto after Carney’s April election victory on a platform of “build baby build” fast-tracked projects and infrastructure investment.

In the Financial Review article, IFM chair Cath Bowtell said Australian pension funds have struggled to find more opportunities to invest in Canada and are eager to work with Canadian governments at the federal and regional levels to eliminate regulatory frictions. She added that policy reform and faster planning approvals could create more opportunities.

“It’s a jurisdiction that we would like to invest more in,” she said. “As they look to private capital, we really want to be at the front of the queue.”

Carney’s government likely hopes others will think similarly. During his trip to Saudi Arabia this month, the first by a Canadian leader in more than a quarter-century, the prime minister told reporters that the Public Investment Fund, the Middle Eastern kingdom’s US$900-billion sovereign wealth vehicle, is among the large investors that will be attending the investment summit he’s hosting in September.

Slowly but surely, we are getting an idea of who will be attending the Canada Investment Summit in September that Mark Carney's government is putting together.

IFM Investors, one of the world's largest infrastructure investors, led by David Neal and his team, will attend, representing institutional investors, including AustralianSuper and the Australian Retirement Trust.

Representatives from the Public Investment Fund, Saudi Arabia's US$900-billion sovereign wealth fund, will also attend. And I'm certain other big funds will also send a delegation. 

Keep in mind, back in March, Canadian and Australian pensions struck the first-of-its-kind cross-border investment pact, a memorandum of understanding (MOU) under the Canadian-Australian Pension Funds Investment Initiative (CAP Invest Initiative). I covered it here.

And in April, Prime Minister Mark Carney announced Canada’s first national sovereign wealth fund, calling it the “Canada Strong Fund.” 

Last week, I discussed how the Maple 8 funds are well-suited to finance Canada's nuclear ambitions and why Tim Hodgson, Canada’s natural resources minister, is the key person Carney is turning to get these projects going.

Now, it doesn't take a political aficionado to see that Carney's government has nothing in common with his predecessor, and is taking the needed steps to attract foreign investment into Canada and open up opportunities for domestic pension funds to invest in infrastructure projects at home.

Going into the Canada Investment Summit in mid-September, I foresee more key announcements and even more after the summit.

Carney, who led Brookfield's ESG and Impact Fund Investing prior to becoming PM, knows all the key players all over the world.

People wonder why he travels half the time; it's to meet his counterparts and global investment leaders to sell Canada.  

These are not relaxing trips; they're packed with back-to-back meetings and in many cases, they're high-stakes meetings.

One thing I'd recommend to Mark Carney is to sit down and do more one-on-one interviews to sell his agenda. 

Television commercials are fine but they can't cover much in-depth (a lot of Canadians will tell you they like Carney; he seems "serious," but they don't know much about him).

When you're selling Canada to foreign investors or an agenda to the populace, you need an A1 communications strategy. And that I think needs more work (again, Tim Hodgson is doing most of the heavy lifting there).

Alright, let me end it there.

What a game between Spain and France, so happy to see Spain heading to the World Cup Final.

Below, PM Mark Carney gives an update on the progress his government is delivering (2 weeks ago).

As I said many times, the time for more action, less talk, has come. Hope we see more announcements before the major summit in September. 

Child labor protections have existed for nearly a century but have come under attack in recent years. In 1938, the Fair Labor Standards Act (FLSA) set guidelines for the hours and nonhazardous jobs for which employers could hire children under 16, guidelines that have for decades helped ensure that young teens could enter the workforce without jeopardizing their health or education. Where state standards are weaker than those provided in FLSA, federal law preempts the state standard, preventing states from undercutting protections for the youngest workers. But for the past several years, a constellation of business interests and right-wing groups have been proposing or enacting state child labor legislation—in Ohio, among other states—that conflicts with the FLSA with the eventual goal of eroding federal standards.

After years of pushing unsuccessfully to weaken work hours protections for 14–15-year-olds in Ohio, industry groups have partially succeeded with the help of State Senator Tim Schaffer. Just months after a public outcry led Governor Mike DeWine to veto similar child labor rollbacks in 2025, Schaffer revived the attack on child labor laws by sneaking an amendment into a broader bipartisan education bill. An unrelated amendment tacked onto the new law will allow employers to schedule 14–15-year-olds until 9 p.m. during the school year, though (unlike prior versions of the legislation) only on nights not preceding a school day. The change puts Ohio state law in conflict with long-standing federal child labor standards and allows employers to treat young teens more like adults for scheduling purposes, while saving on labor costs. In Ohio, employers can pay youth under 16 the federal minimum wage of $7.25, nearly $4 less than the regular state minimum wage of $11 an hour.

Industry-supported Ohio Senator snuck failed child labor rollback into bipartisan bill to force lawmakers’ support

In late 2025, Governor DeWine vetoed a standalone bill that would have extended the number of hours that employers can schedule 14–15-year-olds to work on any night during the school year—in violation of federal law—after advocates from a long list of child health and welfare, education, organized labor, and economic justice organizations publicly urged him to oppose it. In his veto message, DeWine acknowledged that existing work hour guidelines—providing young teens (under 16) opportunities to gain work experience “after school up to 7 p.m.”—have been “in place, across this country, for many years” and have “served us well” and “effectively balanced the importance of 14- and 15-year-old children learning to work, with the importance of them having time to study.”

But DeWine has now approved similar changes as part of a comprehensive, bipartisan education bill that received broad support, including from education and child advocates. State Senator Schaffer’s 11th-hour backdoor move to add previously vetoed child labor legislation to this year’s education bill was a desperate effort to force changes that have otherwise failed to pass muster, even in a Republican-controlled state legislature.

Federal child labor laws reflect decades of research about the harms of overwork

Allowing young teens to work more hours at night opens the door to problems ranging from poor academic outcomes to a greater chance of injury. Studies have consistently shown that intensive work at a young age is associated with poor academic outcomes; longer hours raise the risk of work-related illness and injury; and working later into the night exacerbates sleep deprivation that in turn can interfere with teens’ education and well-being. Allowing employers to schedule young teens to work until 9 p.m. also increases the likelihood of nighttime driving for new drivers (minors can be permitted to drive at age 15.5 in Ohio), an additional risk factor for accidents. Motor vehicle crashes are already the leading cause of death for teens and young adults, who are three times more likely than adults to die in a car accident.

For all these reasons, federal law limits the maximum number of working hours for young teens to three hours per night or 18 hours a week and prohibits work past 7 p.m. during the school year. Because states can legislate above FLSA standards but not below, the new state standards conflict directly with federal law.

The enacted rollback is less harmful than last year’s failed bill but still hurts children and violates federal law

While the bill DeWine vetoed in 2025 would have allowed employers to schedule 14-year-olds to work until 9 p.m. on any night during the school year, the bill he signed on Friday allows employers to schedule 14-year-olds to work until 9 p.m., only on nights not preceding a school day. However, this limitation on working hours during school nights does nothing to change overall concerns: that later and longer working hours during the school year threaten children’s well-being and education. The new state law also conflicts with federal law and will sow confusion. Employers who follow new state guidelines will be at high risk of violating the FLSA (which will continue to apply to most Ohio employers) and incurring fines and other enforcement actions from the U.S. Department of Labor. This is a lesson that employers have already learned the hard way in states like Iowa where the National Restaurant Association, NFIB, and others have pushed for similar child labor law changes that put state standards into conflict with federal law.

The outcome this year in Ohio provides a useful illustration of how corporate interests and dark money groups are conspiring to weaken labor standards in state legislatures across the country. Schaffer has championed multiple legislative efforts to roll back child labor protections in Ohio in coordination with industry groups that benefit from weaker standards and has even sought to erode federal child labor standards through a concurrent resolution calling on Congress to weaken the FLSA to match.

Schaffer has been clear about his intention to benefit employers, working closely with lobby groups like the billionaire-founded right-wing dark-money group Americans for Prosperity and state affiliates of industry lobby groups like the National Federation of Independent Business (NFIB) and National Restaurant Association. These organizations have fought at the state and federal level for unpopular child labor rollbacks, as well as blocking minimum wage increases, paid sick leave, and other policies that improve conditions for workers. Schaffer has received legislative awards or campaign endorsements from all three groups.

By repeatedly proposing—and in this case implementing—rollbacks that conflict with federal law, Ohio lawmakers are chipping away at the already fragile federal floor for workplace protections. Industry campaigns to weaken child labor laws are continuing, and there is a very real risk that federal child labor protections could face similar threats. In light of these threats, states should instead pursue policy options to strengthen standards and ensure that young teens who work can do so without harming themselves in the process.

Freschia Gonzales of Benefits and Pensions Monitor reports a winning portfolio can still look like a loser, CPP Investments warns:

CPP Investments argues that beating a benchmark no longer measures whether a portfolio is working.  

Its modelling shows a diversified pension fund can trail its market benchmark almost 30 percent of the time over a decade, even when its underlying strategy genuinely adds value. 

That figure comes from a July 2026 paper from the CPP Investments Insights Institute, the second in a series on the total portfolio approach (TPA).  

In a stylized illustration, the authors modelled two portfolios carrying the same total risk: a strategic asset allocation (SAA) portfolio highly correlated with its benchmark, and a TPA portfolio built to diversify away from it.  

Even with a higher expected value-add of 100 basis points, the diversified portfolio showed a 29.8 percent chance of underperforming its benchmark over 10 years, the report said, compared with 6.5 percent for the more benchmark-hugging design.  

These are false negatives, cases where a sound portfolio looks like it failed. 

The paper frames the problem as one of accountability outgrowing its measuring stick. 

Under traditional SAA, the report explained, a board sets a policy portfolio and management is judged on whether it beats that benchmark.  

Under TPA, management instead owns a broader set of interconnected choices, including how much risk to take, how to diversify, how to balance liquidity, and how to implement, and all of those decisions fall within the scope of performance assessment. 

CPP Investments set out three reasons a single benchmark falls short.  

First, the authors noted, short-term outperformance or underperformance often reflects luck rather than skill, a problem amplified when a portfolio is intentionally built to differ from its index.  

Second, benchmarks drift: as market concentration rises, capitalization-weighted indices can take on exposures managers never intended to hold.  

The report pointed to research by Sorensen, Alonso and Belanger describing this as a benchmark's "chameleon" nature, which it said can reward concentration when concentration is winning and penalize diversification held for long-term resilience.  

Third, as portfolios add private assets, illiquidity premia and long-duration cash flows, comparisons to public-market indices become, in the report's words, "apples-to-oranges." 

Diversification's recent optics feature prominently.  

Over the past few years, the upper deciles of feasible portfolio returns have been dominated by heavy exposure to US tech mega-cap listed equities, according to the paper, leaving diversified designs in the lower portions of the distribution.  

That does not mean diversification failed, the authors argued, but rather that portfolios built for many environments will lag concentrated, equity-heavy portfolios in a market that rewards listed equities far beyond expectations. 

For plan sponsors weighing whether a differentiated strategy is paying off, the report offered CPP's own sustainability record as evidence on its risk-setting decision. 

Investment performance is estimated to have cut the base CPP minimum contribution rate from 9.54 percent in the 31st actuarial report to roughly 9.19 percent, a fourth consecutive triennial decline. 

Measured from 2012, the rate has fallen from 9.84 percent despite adverse demographic surprises that would normally push it higher.  

The Spring Economic Update 2026 proposed reducing the legislated base statutory contribution rate from 9.9 percent to 9.5 percent starting in 2027, the report noted, citing the improved funding position.  

CPP Investments targets a level of market risk equal to a portfolio of 85 percent global equities and 15 percent Canadian government bonds for the base plan, and 55 percent equities to 45 percent bonds for the additional plan. 

Rather than replace benchmarks, the report positioned them as a diagnostic input within a six-part framework spanning total return outcomes, risk and capital allocation, portfolio construction and diversification, investment selection, decision quality and process, and resilience across market regimes.  

Benchmark outperformance does not always deliver institutional aims, the authors wrote, since a strategy can beat its index simply by adding concentration or exposures already held elsewhere. 

The challenge reaches beyond pension investing, CPP Investments said, as more organizations manage portfolios against multiple long-horizon goals such as inflation protection and sustainability.  

For boards, the paper's takeaways were to align evaluation with delegated decision rights, connect outcomes to objectives, and treat benchmarks as one part of an overall assessment.  

The question, the authors concluded, is no longer whether a portfolio beat its benchmark but whether every management decision improved the delivery of long-term goals. 

The paper was written by Sally Shen, manager at the Insights Institute; Derek Walker, managing director of total fund transformation initiatives; and Geoffrey Rubin, senior managing director and one fund strategist.   

Sally Shen, Derek Walker, and Geoffrey Rubin of CPP Investments wrote a second report entitled Measuring What Matters: Evaluating the Total Portfolio Approach:

For decades, institutional investors operated in a relatively stable world. Inflation was subdued, globalization deepened, and public markets expanded. In this environment, traditional Strategic Asset Allocation (SAA) frameworks offered a practical way to organize and measure investment decisions: establish a “policy portfolio”, measure total-fund returns against it, and assess active managers relative to their benchmarks.

That world is changing.

Economic fragmentation, heightened geopolitical uncertainty and a growing need for resilience across a wider range of market conditions have led many investors to adopt variants of the Total Portfolio Approach (TPA). As we explored in a previous report, TPA offers greater flexibility to construct portfolios around long-term objectives by managing risk, diversification, liquidity, and capital allocation at the total-fund level rather than within asset-class silos.

Yet increasingly, the way portfolios are managed under TPA no longer aligns neatly with how performance has traditionally been measured. Under TPA, management becomes accountable for a much broader set of interconnected decisions: how much risk to take, how to diversify exposures, how to balance liquidity and illiquidity, and how to implement those choices efficiently over time.

This leaves a fundamental question: how should realized performance be evaluated when the portfolio itself is increasingly dynamic, differentiated, and intentionally designed around multiple objectives? This question is especially important for pension funds that are accountable for delivering outcomes over decades—for CPP Investments, over a 75-year actuarial horizon—while providing full transparency and appropriate scrutiny.

Benchmark comparisons remain essential to evaluating active management decisions and maintaining accountability. But under TPA they are no longer sufficient on their own. Measuring the health of a total portfolio requires a broader, multi-faceted framework capable of assessing not only returns, but also the total portfolio’s resilience to adverse market and economic circumstances, the impacts of diversification, concentration and tactical decisions, the effectiveness of implementation, and alignment with long-term objectives. This report examines how CPP Investments is developing its approach.

The Limits of Benchmarks in TPA Performance Assessment

For all the enthusiasm around TPA, its credibility ultimately rests on a simple question: has it worked? Indeed, if institutions cannot assess whether an approach has worked in the past, it is difficult to maintain conviction that it will work in the future.

Traditional SAA frameworks split the overall investment decision into two parts. First, the portfolio owner or board—often with the assistance of a third-party consultant—chooses a policy portfolio of asset classes and weights, with the returns forming the benchmark. Management is then tasked with outperforming that benchmark. This approach provides a straightforward view of management performance: value added relative to a low-cost, investable benchmark.

However, one of the most important decisions—the choice of the policy portfolio itself—typically escapes ongoing evaluation. This decision is stored in the figurative “attic” while performance assessment is focused solely on management’s deviations from the policy and active management benchmark portfolios, rather than the policy portfolio’s suitability for achieving the institution’s objectives (Figure 1).

TPA changes this accountability structure. Management becomes accountable not only for active decisions relative to a benchmark, but for the entire portfolio—from risk choices through targeting of total portfolio exposures, to implementation. All portfolio decisions fall within the scope of performance assessment and must be evaluated based on how well they advanced institutional objectives. This broader accountability requires tools that extend beyond the single benchmark framework typically employed by SAA.

There are good reasons why benchmarks are deeply embedded in institutional investing. First, they constitute simple, unambiguous instructions from principal to agent. Coupled with an active risk limit and a capital allocation, the managing agent understands that their task is to beat the benchmark. And this same benchmark can be used for ex post performance evaluation and incentive compensation, unifying both measurement and management in a single, simple device.

Unfortunately, these features are insufficient for effective performance information and management under TPA.

Issue 1: Noisy Signals

Even genuinely value-additive investment strategies can underperform a benchmark due to randomness—sometimes for extended periods. While this challenge exists under traditional SAA frameworks, it is more pronounced under TPA, where portfolios may intentionally differ from conventional benchmarks in pursuit of diversification, resilience or dynamic positioning.

Barras, Scaillet, and Wermers (2010) show that benchmark-relative outperformance and underperformance often reflect luck over shorter horizons. Barras, Beath, and Betermier (2026) further highlight how noise accumulates along the total portfolio value chain, increasing the likelihood that value-adding diversification decisions appear unsuccessful over finite horizons.

Figure 2 illustrates this challenge. Because TPA portfolios intentionally depart from conventional benchmarks, short-term benchmark-relative underperformance remains plausible even when portfolio decisions are sound and expected long-term outperformance is intact. In short, performance relative to a benchmark provides important evidence, but rarely a complete assessment of whether the total portfolio is succeeding.

This figure provides a stylized illustration of benchmark underperformance across evaluation horizons. The ellipses represent the one-standard-deviation confidence region of 5-year outcomes for the “SAA” and “TPA” portfolios with the same total risk target. The dot within the ellipse represents the expected outcome.

The “SAA” portfolio in the left-hand panel is assumed to have a value-added expectation of 90 bps (the vertical distance or “alpha” to the diagonal line), delivered with relatively narrow error bands due to its lower tracking error versus the benchmark. The “TPA” portfolio in the right-hand panel is assumed to have a value-added expectation of 100 bps, but larger error bands due to substantially lower correlation of its returns with the benchmark, arising from differentiated portfolio construction and diversification decisions. The shaded area below the diagonal line represents benchmark underperformance despite positive true alpha (“false negatives”).

Over a single year, both the “SAA” and “TPA” portfolios show significant incidence of underperformance to the benchmark (see the table below Figure 2). At five- and 10-year horizons, the compression of the “SAA” error bands makes false negatives increasingly unlikely. By contrast, while the “TPA” error bands also compress over time, realized benchmark underperformance remains plausible even at longer horizons despite higher alpha expectations, as false-negative probabilities remain elevated. Importantly, Figure 2 is not intended to suggest that either the SAA portfolio or the TPA portfolio is inherently superior. Rather, it illustrates a measurement challenge that arises when portfolios are intentionally diversified away from a single benchmark.

Issue 2: Benchmarks That Do Not Reflect Intended Portfolio Design

A second challenge is that benchmarks can evolve significantly over time. As market concentrations shift, capitalization-weighted indices can come to embody risk exposures that differ materially from those that portfolio managers intentionally seek to maintain. This matters because TPA practitioners typically aim to diversify away from concentrations that accumulate in widely used benchmarks.

Sorensen, Alonso, and Belanger (2023) describe this as the benchmark’s “chameleon” nature: as market concentration rises, diversification falls, and tight tracking-error constraints can force managers to hold portfolios that are more concentrated than intended or prudent.

This creates a distorted incentive problem. Benchmark-relative evaluation can reward concentration when concentration is winning and penalize diversification that is being maintained to support long-term resilience. Over time, this can pull portfolios closer to the benchmark—even when doing so undermines the broader objective of diversification and total portfolio resilience.

Issue 3: Apples-to-Oranges Comparisons

As portfolios become more differentiated, comparisons to any single benchmark become less informative. At CPP Investments, portfolio outcomes reflect exposures to illiquidity premia, long-duration cash flows, operational value creation, and other risk factors that are not fully captured by public market benchmarks. The result: simple public benchmark-relative performance is an apples-to-oranges comparison that can mislead as much as it informs.

This limitation is particularly evident in private assets such as infrastructure, where public benchmarks often fail to capture contractual cash flows, inflation linkage, and long-term active management of the portfolio assets. As Shen and Blanc-Brude (2022) demonstrate, these characteristics are difficult to replicate through conventional public-market benchmarks. As a result, private assets must ultimately earn their place in the portfolio relative to public-market alternatives. However, simple benchmark comparisons may not fully capture their contribution.

These benchmarking issues, and expanded accountability for the entire investment problem, make assessment of TPA performance difficult but not impossible. Ex post performance assessment remains vital to sustaining confidence and improving decisions over time.

The challenge, then, is assessing performance through multiple lenses rather than via a single verdict.

Moving Beyond Benchmarks

Ex post performance assessment under TPA begins with a clear statement of institutional objectives. For some organizations, the primary objective is pension plan sustainability (e.g., funded status or contribution rate stability); for others, objectives may include liquidity preservation, inflation protection, intergenerational risk-sharing, or climate and other broad policy considerations. A credible ex post assessment must evaluate success against each of those ex ante objectives while also considering whether the decisions that produced the outcomes were sound given the information and alternatives available at the time.

CPP Investments’ objectives are grounded in the Canada Pension Plan Investment Board Act1:

• To invest CPP assets with a view to achieving a maximum rate of return, without undue risk of loss, having regard to the factors that may affect the funding of the Canada Pension Plan;
• To manage the fund in the best interests of CPP contributors and beneficiaries;
• To assist the CPP in meeting its obligations to contributors and beneficiaries.

While these objectives are clear, they are multi-purpose and multi-horizon. They must be translated into a more complete set of aims that define risk appetite, outcome horizons, and the desired level of portfolio resilience through market and economic cycles. Clarifying and balancing those aims, and the constraints within which they must be pursued, is a prerequisite for assessing TPA performance.

TPA performance is best understood by examining the many decisions that collectively produce total portfolio outcomes. Decomposing performance into its component decisions does not diminish management’s accountability for overall results, but it does provide useful evidence on the performance of each major link in the chain. Traditional benchmark-based frameworks assess only parts of the investment problem—typically the active components relative to benchmarks—while disregarding the rest.

In practice, CPP Investments undertakes many investment decisions in pursuit of its objectives. For the purposes of this report, we are focusing on three that have an outsized influence on long-term outcomes—risk level, exposure targeting, and investment selection. Together, these decisions shape portfolio design, realized returns, and delivery against objectives, though in different proportions (Figure 3).2 Here, we discuss each of these decisions and the approach to understanding their performance, noting that this approach can be extended to a wider range of decisions and institutional aims.

Decision 1: Risk Targeting: Did the chosen level of market risk optimize plan adjustment risk?

The first major TPA decision at CPP Investments is the level of market risk the Fund should target. CPP Investments establishes a level of market risk that optimizes the combination of positive and adverse adjustments to the CPP that might arise from our realized investment performance.

Lower-risk portfolios reduce short-term investment return volatility but may deliver insufficient long-term returns to support CPP sustainability. Higher-risk portfolios increase expected returns but also increase the likelihood of adverse outcomes in the short-term. Risk targeting therefore reflects a trade-off between short-term volatility and long-term plan sustainability.

CPP Investments manages this trade-off by targeting a level of market risk that best balances positive and adverse potential plan adjustments over time.  In this model, adverse outcomes carry more weight than positive outcomes and nearer term outcomes carry more weight than distant ones.  For the base CPP, this work establishes a target level of market risk equal to that of a portfolio comprised of 85% global equities and 15% Canadian government bonds; and for the additional CPP an equity-debt risk equivalence of 55% global equities and 45% Canadian government bonds.3 These levels of market risk generate expected returns that exceed the minimum level required for CPP sustainability, reducing the likelihood of adverse plan adjustments and improving the likelihood of positive adjustments over time.

Has this decision worked? Figure 4 illustrates how these returns have impacted base CPP sustainability and contributed to sustained reductions in the Minimum Contribution Rate (MCR).4 Most recently, investment performance is estimated to have reduced the MCR from 9.54% in the 31st OCA Actuarial Report (2021) to approximately 9.19%,5 marking the fourth consecutive triennial decline. The Spring Economic Update 2026 proposed reducing the legislated base CPP Statutory Contribution Rate from 9.9% to 9.5%, beginning in 2027, reflecting the improved sustainability position of the CPP following the latest triennial review.6

Decision 2: Exposure Targeting: Did portfolio design improve the investment outcome?

Portfolio design is the second major TPA decision at CPP Investments. It includes choices related to diversification, leverage, geography, currency, sector, and other systematic risks, while maintaining the total risk established through risk targeting. There are many ways to design a portfolio at the same overall risk level; CPP Investments’ objective is to identify the portfolio most likely to deliver objectives across a wide range of future states, rather than maximize performance for any single objective or in any single market environment.

Under TPA, there is no natural “default” portfolio. A benchmark, whether a simple blend of 85% global large- and mid-cap equities and 15% Canadian government bonds, an equal-weight index, or something more customized, is only one feasible design among many. Portfolio design should therefore be evaluated against a broad collection of feasible alternatives that achieve the same risk target through different portfolio construction approaches, resulting in materially different exposures and trade-offs, not a single comparator.

In a sense, SAA is like a prize fight pitting the chosen portfolio design against a single competitor, the benchmark. Management can study this lone competitor at length, hugging or replicating the benchmark where they possess no edge and separating and fighting where they sense advantage. In this contest, the delivery of institutional aims is subordinated to a singular focus on benchmark outperformance. TPA places the chosen portfolio design in combat with all comers, aiming to outperform all feasible alternatives in the service of institutional aims. A more challenging prospect, for sure, but all possibilities are equally relevant, and realized performance should be assessed against each of these foregone alternatives.

Figure 5 illustrates CPP Investments’ approach to understanding the performance of portfolio design. At the outset of any measurement period, we identify a vast range of portfolios that share the targeted level of market risk and conform to institutional constraints. These alternatives differ by factor exposure, public and private composition, diversification, leverage, liquidity, currency, geography and sector. Each represents a viable design choice and will have delivered a distinct realized return over the period. We consider many thousands of foregone portfolio alternatives and calculate the realized returns of each over the observation period, arraying these returns in the distribution shown in Figure 5. The realized returns of our actual chosen portfolio design are also included.

While TPA aims to find the single best portfolio from among the multitude, there will always be some portfolios that outperform our choice in any fixed observation period. In fact, the “winning” portfolio design in any short time frame is typically suited only for the environment that transpired, rather than the range of possible environments that might unfold over time. The best long-horizon portfolio design is one that maintains a position in the upper quintiles of this distribution through many market cycles and under different market conditions.

Over the past few years, the upper deciles of this realized return distribution are dominated by portfolios with heavy exposure to U.S. tech mega-cap listed equities. Given the extreme dominance of U.S. public equities’ returns, particularly in a few industries, diversified portfolio designs delivered returns in the lower portions of the distribution, with private-asset heavy portfolios tending to be further to the left. This does not necessarily imply that diversification failed. Rather, it demonstrates that portfolios designed for many environments will underperform concentrated equity-centric portfolios in environments that deliver listed equity returns far in excess of expectations.

This technique rigorously assesses the portfolio design choice without reverting to comparisons with a single benchmark. The positioning of realized returns within the distribution of all viable alternatives provides critical evidence on the success of the TPA exposure targeting choice in supporting institutional aims.

Decision 3: Investment Selection: Separating Skill-Based Value Added from Market-Driven Returns

Investment selection is the third TPA decision evaluated at CPP Investments. It relies more heavily on benchmark comparisons. CPP Investments compares the realized investment performance of each investment strategy to a benchmark comprised of public market indices with similar systematic risk exposures. Results are then aggregated to the department level, helping distinguish skill-based value added from the beta-driven returns generated by broader portfolio design decisions.

The aggregation of these benchmarks provides an overall “Benchmark Portfolio” for the base and alternative CPP, providing a view of the collective impact of investment decisions. While management remains accountable for total portfolio outcomes; these benchmark comparisons help assess the contributions of individual strategies and departments. For private assets, it is critical to distinguish between two separate sources of value added: the strategic decision to invest through private rather than public markets, and the investment skill demonstrated relative to an appropriate private-market benchmark.7

Toward a Multidimensional Assessment of TPA Performance

Under a traditional SAA framework, the benchmark often acts as the objective, the instruction set, and the scorecard. Under TPA, management is accountable for a broader set of decisions that require multiple lenses. Performance assessment must go beyond absolute and relative returns and consider risk-setting, diversification, resilience, risk and capital allocation, portfolio construction, implementation skill and decision quality (Figure 6). An assessment must also consider whether governance processes are functioning effectively and whether the portfolio remains aligned with long-term objectives.

CPP Investments assembles the pieces of performance assessment that provide a more complete picture of whether and how TPA is improving long-term outcomes. Different metrics answer different questions. Reference portfolio comparisons help assess broad design choices, global market portfolios provide context on opportunity cost, unlevered portfolios isolate the impact of leverage, and peer comparisons offer an external perspective.

Benchmark outperformance is an important part of this balanced view. At the investment strategy level, benchmarks help distinguish alpha from beta returns and assess implementation skill, and at the total portfolio level they help explain aggregate implementation outcomes. Under TPA, benchmarks are a diagnostic input into performance evaluation rather than the sole measure of success. This distinction matters because benchmark outperformance does not always deliver institutional aims. A single strategy can outperform its benchmark by increasing concentration or adding exposures already held elsewhere in the portfolio. Conversely, the total portfolio may intentionally accept benchmark-relative headwinds if doing so improves diversification, resilience or alignment with long-term goals.

Conclusion

Performance assessment is difficult under a Total Portfolio Approach—not because performance is less measurable, but because the scope of accountability is broader.

A credible ex post assessment framework should be linked to institutional aims and employ multiple lenses, including risk targeting, diversification, portfolio construction, investment selection and long-term sustainability outcomes.  Benchmarks remain essential tools for attribution, discipline and accountability, but under TPA they become diagnostic inputs rather than singular verdicts on success or failure.

This challenge extends beyond pension investing. As organizations increasingly manage portfolios against multiple long-horizon objectives—including environmental sustainability, development, inflation protection, or social objectives—performance assessment cannot be meaningfully reduced to a single benchmark-relative outcome.

For boards and portfolio owners, the key takeaways are to:

• align evaluation with the delegated decision rights;
• connect outcomes to objectives; and
• use benchmarks as part of an overall assessment rather than as the sole measure of success.

The question is no longer simply whether a portfolio outperformed a benchmark, but whether all management decisions, including portfolio design and execution, improved the delivery of long-term institutional goals.

This is another excellent report on CPP Investments' total portfolio approach (TPA) that will surely stir conversations at the Maple 8 and beyond.

Make sure you read their first report, Investing in Uncertain Times: Achieving Disciplined Flexibility in the Total Portfolio Approach, which is available here. I covered it here.

Sally Shen, Derek Walker, and Geoffrey Rubin are very smart, no doubt about it, and they really do a great job distinguishing between the strategic asset allocation (SAA) framework and the total portfolio approach (TPA) and how the latter broadens diversification in a more meaningful way, and better aligns outcomes with objectives.

The big problem with TPA -- and they allude to this --  is that it's much harder to measure its success relative to the more straightforward benchmark comparison in SAA, which is used to evaluate active management decisions: 

Benchmark comparisons remain essential to evaluating active management decisions and maintaining accountability. But under TPA they are no longer sufficient on their own. Measuring the health of a total portfolio requires a broader, multi-faceted framework capable of assessing not only returns, but also the total portfolio’s resilience to adverse market and economic circumstances, the impacts of diversification, concentration and tactical decisions, the effectiveness of implementation, and alignment with long-term objectives. This report examines how CPP Investments is developing its approach.

Now, let's stop to ponder this for a second.

Critics will claim this is all rubbish. If CPP Investments cannot beat a low-cost index portfolio over a one, three, or five-year period, then why are we paying their employees big bucks to actively manage our pension assets?

For them, these discussions on TPA are nothing more than a theoretical exercise in obfuscation: "Benchmarks don't work any longer because concentration risk in equities is too high; trust our TPA approach is much more sophisticated and resilient than the traditional SAA approach."

For critics, it's simple: if you can't beat a low-cost ETF over a 5-year period, then there is no point in actively managing pension assets, even if you're delivering decent returns above the actuarial target.

And to be sure, the State Street SPDR S&P 500 ETF Trust (SPY) is up 73% over the last 5 years, led by the VanEck Semiconductor ETF (SMH), which is up 373% over that period.

In other words, five years ago, we could have closed down CPP Investments and all the other Maple 8 funds and shoved all the pension assets into the SPY, generating eye-watering returns, and saving hundreds of millions in fees to external managers and hefty compensation to the employees of these large Canadian pension funds (especially their senior managers).

Even if you put 85% or 70% of the assets in SPY or MSCI ACWI and the rest in a Canadian, US or a global aggregate bond ETF, you'd come out way ahead in terms of returns.

This is all true, but it's missing an important consideration: the risk of having such a high allocation to US or global equities when the concentration risk remains at a very high level.

Still, critics will snap back: "So what, concentration risk is fine as long as the bubble keeps inflating, and nobody knows when it will pop. It could last years"

Here is where we need to pause and ask: "Will US equities over the next 5 years produce anything close to what they produced in the last 5 years?"

And I say US because US equities dominate global equity indexes.

My answer is that it's highly unlikely that US equities come anywhere close to producing the same return over the next 5 years, and I also fear bonds will severely underperform if stagflation develops.

So, if public equities will not provide the requisite return, and neither do bonds, pension funds are left with alternative assets like infrastructure, real estate, private equity and private debt. 

This is where a total portfolio approach (TPA) differs from strategic asset allocation (SAA), as it directly links an outcome (attaining a return above the actuarial rate-of-return over the long run) to the objective of the pension fund, ie. maximizing returns without undue risk of loss, with regard to the funded status of the plan.

TPA also does a better job linking pension assets with their long-dated liabilities in a more comprehensive way.

CPP Investments is managing over $800 billion in assets, you definitely don't want them to be all in equities and they are large enough to take on illiquidity risk in assets that offer more stable, inflation-protected returns.

Moreover, the diversity of the portfolio, whether it's geographic, sector or by asset class and strategy, makes the Fund more resilient to downside risks over the long run.

That is the point CEO John Graham was driving at when he recently penned a comment on why protecting the CPP means taking the long view on investment returns.

But critics will keep harping that the bloated CPP Board is trounced by its benchmarks again. 

If these highly-paid, smart folks at CPP Investments can't beat their own benchmarks, why are we paying them for?

In fact, the same argument can be expanded to all the Maple 8 funds since they all underperformed their benchmark over the last three years as concentration risk in US equities has risen to historic highs.

Part of the answer is you're paying them to deliver consistent returns over their actuarial target (for most it's around 6%) over the long run, and you absolutely want them to minimize their drawdown to avoid another 2008 fiasco, where most pension funds were down 20% to 40%. 

Critics will still come at you: "Who cares if stocks decline 40%, they always bounce back big." 

Well, not always. Sometimes stocks keep going down for years, and it can take decades to come back to a previous peak. 

This is where the real value of adopting a total portfolio approach is critical for pension funds, because when the music stops and things start heading south, you want your pension fund to sustain that hit as best as possible (they will lose money but nowhere near as much as a pure equity fund). 

Moreover, sophisticated pension funds like CPP Investments manage their liquidity well, so they will be able to pounce on opportunities when market dislocations occur. 

"Ok, Leo, that's all fine and dandy, but how are we supposed to measure the success of TPA properly? It's not as straightforward as SAA."

Correct, it isn't easy, and nor am I suggesting it's easy to measure the success of TPA, but the easiest way is to link it to outcomes. 

Are you getting the outcome you're desiring over the long run with a diverse TPA approach? 

If so, then that really is all that counts.

Is TPA perfect? Hell no! There are still a lot of issues to contend with and lots of uncertainty. 

For example, what if there is a structural change in private equity?  How does TPA account for this structural risk properly? The same applies to other illiquid asset classes and private debt.

How does TPA account for all risks? For example, CPP Investments is underweight tech shares in global stock markets but overweight data centres in illiquid asset classes.  

Is that a disconnect or an appropriate risk to take?

And benchmarks remain important, but they are far from perfect and should be comprehensively reviewed every three or five years, and changed like BCI did last fiscal year? (to introduce more sector-neutral indexes or equal-weight indexes)

Any changes to benchmarks must be clearly stated in the annual report with a full discussion and analysis. 

Equally important: What is the opportunity cost of adopting a TPA framework over an SAA framework?

In the last five years, it's been huge, but was this always the case? 

CPP Investments and other large pension funds espousing a TPA approach need to provide numbers and hard facts to back up their case for TPA, not just conjecture and "trust us, we know best."

If not, the critics will always lurk in the background, claiming they are bloated pension funds that keep underperforming their benchmarks while they dole out huge compensation to senior managers.

This is an important discussion and I am only scratching the surface. 

I'd need to interview Sally Shen, Derek Walker, and Geoffrey Rubin to really get into it properly with them but they have done a fantastic job highlighting the important issues and why TPA is a better framework than SAA for pension funds.

Below, CPP Investments' CEO John Graham joins Nicolai Tangen, CEO of Norges Bank Investment Management, for a great discussion in his In Good Company podcast. 

Take the time to listen to this podcast, John goes over many important points on their total portfolio approach, and Nicolai does another masterful job of asking all the right questions.

It has been a year since President Trump signed the 2025 Republican tax and spending megabill (the OBBBA) into law. The bill is guaranteed to lead to some of the largest short-run increases in inequality in American history. It included large tax cuts tilted toward higher-income households and spending cuts tilted against low-income households. The main targets for spending cuts were Medicaid and the Supplemental Nutrition Assistance Program (SNAP, often referred to as foods stamps). The Congressional Budget Office projects the OBBBA will reduce Medicaid enrollment by 7.5 million people, cut Medicaid spending by more than $900 billion, cut SNAP by $186 billion, and will require states to pay for a portion of the SNAP program.  These large cuts will have far-reaching implications for low-income families.

Defenders of the OBBBA cuts claim that, because a large share of these cuts result from introducing new bureaucracy around work-reporting requirements for “able-bodied adults without dependents” (ABAWDs), they will not fall on more vulnerable populations like children or retirees. This is not true. The OBBBA has many near-direct cuts to vulnerable populations’ participation in these programs. More importantly, these cuts will have large spillover effects through families and communities that will harm vulnerable populations—including children.

This post highlights how important Medicaid and SNAP spending is to children, with a particular focus on how these programs support public education. It then outlines some ways that the legislated cuts in the OBBBA will damage this support, either directly or through clear spillover effects through damage to local economies.

The importance of Medicaid and SNAP to children and schooling

Around 40% of school-age children are covered by Medicaid for health insurance, and nearly 30% of school-age children live in families that receive SNAP benefits. Medicaid funding is key for public education. It provides an estimated $7.5 billion annually to public schools to fund essential health and learning and development services. As a share of total K–12 student revenue, Medicaid provides up to 2% of school funding to some states and up to $325 per pupil in revenue in some states.

Medicaid is particularly crucial for special education. Public schools are required by law to provide appropriate care and services for individualized education plans, and Medicaid is a big source of funding for these plans. In a recent survey of school districts, 86% reported they use Medicaid funds for school health staff salaries, and 59% use the funds for contracted services for mental and behavioral health. When asked what they would have to cut if they lost Medicaid funding, 8 in 10 school district staff predicted reductions in school health personnel and services.

How Medicaid and SNAP cuts will still harm children through direct fiscal pressures

While the OBBBA cuts to Medicaid and SNAP do not directly harm children through cuts in children’s health insurance or their food stamp eligibility, changes to eligibility criteria and cost pressures on state budgets will make it onerous to maintain current spending levels for one of the main public institutions that support children: public schools. For example, if states want to maintain coverage for any ABAWDs who lose coverage because of the work requirements stipulated in the OBBBA, states will have to come up with funding for it themselves.  Additionally, the SNAP legislation requires that states now pay for 25% of their administrative costs that previously were fully funded from federal sources. With less federal money, states will either have to cut spending elsewhere in their budgets or (preferably, but politically difficult) raise revenue. None of these are easy political choices, and they all have some spillover effects. As one of the largest budget items in states, K–12 education funding will likely be squeezed in any state looking to maintain any of the services cut in the OBBBA without raising revenue.

How Medicaid and SNAP cuts will harm children through damage to local economies

Beyond these direct budgetary impacts, the OBBBA Medicaid and SNAP cuts could also reduce purchasing power in local economies and put upward pressure on unemployment rates, which could reduce economic security and opportunity for children in those areas.  Adults who receive Medicaid and SNAP don’t have to use their household budget to pay for health care or (some) groceries. Medicaid and SNAP allow them to maintain access to these necessities while also purchasing other goods in their local economy, such as electricity, child care, or rent. When these programs are cut, people face higher health and food costs, which can force them to cut back on purchases and reduce demand throughout the local economy.  

Moreover, areas particularly dependent on Medicaid and SNAP funding are least likely to be able to weather a reduction in aggregate demand for goods and services. Figure A shows that there is a clear positive relationship between a county’s unemployment rate and the income from Medicaid and SNAP. In other words, counties with high unemployment levels are also counties where a large share of their total income comes from Medicaid and SNAP funding.  

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To be fair, at the national level, it is possible that the reduction in spending caused by Medicaid and SNAP cuts will be neutralized by policies that raise incomes and demand elsewhere (say, by the tax cut provisions of the OBBBA or a Federal Reserve interest rate cut). But areas that are already facing high unemployment are missing out on positive trends in the U.S. economy. For these counties, the demand shock caused by Medicaid and SNAP cuts could be large, leading to job loss in these counties.

Damage to local economies hurts students and workers

Job loss from the spillover effects of the OBBBA cuts to local economies will create stress and financial insecurity for families, a catastrophe that research has shown can harm student achievement.

Parental job loss plays a key role in reducing parent and child well-being  and has been shown to  reduce a child’s likelihood of grade completion. Moreover, parental job loss is associated with a lower likelihood of obtaining postsecondary education, particularly in Black families. Causal evidence on community level job losses found a reduction in test scores for students, following the closing of a business. The effects were stronger for older children and for children in lower-income households. Even if the Medicaid cuts mostly target adults (ABAWDS), the reduction in local aggregate demand stemming from these funding cuts will hurt all families in a given region, and particularly for children, stand to harm their educational achievement. 

Conclusion

The cuts to Medicaid and SNAP mandated by the OBBBA will harm children. Medicaid and SNAP currently fund key health and food services for public education, and while these functions aren’t directly threatened under the OBBBA, the cost pressures states will face from federal funding cuts will threaten the ability of these programs to serve students. Moreover, there are clear spillover effects through damage to local economies. By reducing the amount of available income in these areas, Medicaid and SNAP cuts run the risk of imposing a sharp anti-stimulus to local economies. This effect could be large in demand-constrained counties (studies on the multiplier effect of Medicaid consistently show it has large effects on spending).   The claim that OBBBA won’t harm children is patently wrong, and the harms from it will plague children for a long time to come.