The Total Portfolio Approach

A Framework for the Next Era of Institutional Portfolio Construction

Abstract

Strategic Asset Allocation (SAA) has served as the dominant framework for institutional portfolio construction for decades. Yet a growing number of the world's most sophisticated asset owners, from sovereign wealth funds to pension schemes across four continents, have moved beyond it, adopting what is now broadly referred to as the Total Portfolio Approach (TPA).

Drawing on two major research reports and in-depth conversations with investment leaders at Future Fund, CPP Investments, New Zealand Superannuation Fund, GIC, Railpen, TCorp, PSP Investments, USS, APG, CalPERS, and Alaska Permanent Fund, this article introduces TPA to readers who may be encountering it in depth for the first time. It covers what TPA is, how it differs from SAA across four critical dimensions, why interest in it has accelerated, what the journey toward adoption actually looks like in practice, and perhaps most importantly the conditions that make TPA a good or challenging framework to implement.