CALPERS asset allocation - does it go far enough?

The CALPERS asset allocation represent a very a half hearted attempt at the "new school" approach to asset allocation. By new school, we mean an allocation strategy that tries to provide for maximum diversification. Some have called this the Yale endowment model; however, given the size of CALPERS, their strategy has to be more firmly grounded in holding a broadly diversified portfolio of beta expsoures relative to other pensions. Their commitment to strategy diversification, however, seems limited.  

With 66% in equities, their strategy is not much different than a classic 60/40 equity/bond portfolio mix. The biggest differences come from the fixed income side of the portfolio. Income and real estate represent 25% of the portfolio. The remainder is associated with inflation, cash, and absolute return categories. At only 2%, the absolute return strategies are a very small portion of the portfolio. Any excess return is not coming from hedge fund alpha generators but from the long-term betas across asset classes.

Relative to what has been the buzz in finance, this is a very conservative portfolio. It may not go far enough to get a return that will reduce funding costs if equities underperform.