Total Portfolio Approach (TPA) is an investment model that views the portfolio holistically, rather than separating it by asset class buckets as does the more siloed approach of the Strategic Asset Allocation (SAA).

TPA can be expressed in many different ways, across diverse organizations with different sizes, team structures and needs.

It might look at the portfolio across different dimensions, factors or themes, centralizing liquidity management and reviewing total exposures across asset classes.

The goal is to effectively manage the portfolio as ONE portfolio with risk budgeting controls aligning it to the portfolio objectives.

Why does TPA matter? Early research suggests that the outperformance of TPA vs SAA is on average 100 basis points higher, with some investors citing returns even as high as 200-300 basis points higher than traditional SAA.

But, transitioning firms to this model can be difficult, if it’s even a fit at all. It requires board alignment to a risk budget and significant management delegation, cultural leadership and commitment, team-based and total fund performance incentives, clean and reportable look-through investment data and truly collaborative conversations across a firm on how the portfolio should best be allocated, as every single dollar continually competes for its place in the portfolio.

Advice for managers vying for an allocation from an investor using TPA? Transparency is essential, use of an SMA is helpful and as always, portfolio fit, liquidity terms and performance are paramount.