Talking Total Portfolio Approach: A Useful Concept?

The total portfolio approach (TPA) has been the buzz of the asset allocation industry following a major pension plan’s recent move to replace its strategic asset allocation (SAA) model with a TPA. The announcement has reignited debate: Is TPA a genuine step forward for asset owners and managers, or simply a repackaging of ideas long familiar to the industry? 

In our view, while TPA is an interesting and valuable concept that has clear attractions for certain asset owners such as public pension plans, we do not believe it represents a radical break with existing best practice. In this blog series, we first explain the opportunities and challenges we see with TPA, and then provide a practical framework that public pension plans can use in a world where TPA is likely to matter more.  

What is total portfolio management? 

TPA is often described as a mindset rather than a framework. In practice, it involves moving away from rigid governance structures and placing near-exclusive focus on top-level objectives. In the traditional non-TPA approach, a multi-tiered allocation process is used, where allocations are made to silos and those silos are managed against their own narrow objectives, limiting the top-level allocator to allocations to those silos. 

Instead of breaking portfolio decisions into smaller, siloed components, TPA encourages flexible, interactive processes in which positions are sized solely with reference to overarching goals.  

TPA is therefore more concerned with how an investment team operates than with adhering to a strict allocation model. In the TPA framework, success is based on total fund objectives, rather than relative to asset class benchmarks. The approach has gained traction at a time when governance trends and industry researchers are increasingly questioning structural rigidity and advocating for greater topdown integration, and rising portfolio complexity has made traditional silo-based approaches harder to manage.  

However, the highly interactive, less structured nature of TPA raises its own questions—particularly around accountability and measurability of decision-making success. Highly interactive processes can rapidly become unwieldy, and removing too much structure risks blurring accountability. Pushing customization too far may also reduce accountability and transparency, making performance and success more difficult to interpret. Flexibility is unquestionably valuable, but flexibility without boundaries can undermine discipline and consistency.  

Our approach 

At L&G, many of TPA’s principles already align closely with how we manage portfolios today. Our Asset Allocation teams have long operated with the flexibility, tools and governance structures that allow us to apply the core principles of TPA—while deliberately managing the potential pitfalls.  

We apply concepts selectively, balancing innovation with structure. This is similar to how we have adopted learnings from other asset allocation models such as classic mean variance, risk parity and the endowment model. We aim to deliver TPA’s ambition through a model that is adapted to client objectives and that retains some robustness and transparency. For example, retaining asset-class building blocks provides clarity and a robust framework for decision-making. This structure ensures portfolios remain auditable and governance stays disciplined. Using this balanced approach, our portfolios have demonstrated many of the potential benefits associated with TPA for more than a decade. 

As we focus on incorporating TPA-style thinking where it adds genuine value, we naturally turn our attention next to how public pension liability risk management fits into a TPA framework. We’ll cover this in our next “Talking Total Portfolio Approach” blog. 

Neil Olympio, Co-head of Solutions Strategy at L&G – Asset Management, America contributed to this blog. It includes elements of a blog authored by L&G – Asset Management’s Martin Dietz, Head of Diversified Strategies; Rebecca Burgess Investment Specialist, Asset Allocation; and Christopher Teschmacher, Fund Manager. 

Disclosures

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