The brand-new configuration theory "Holistic Investment Portfolio" is on the rise! It is impacting the most conservative and most important institutions: sovereign funds and pension funds.

A profound transformation is quietly unfolding in the traditionally stable world of sovereign wealth funds and public pensions, as an investment philosophy known as the “Total Portfolio Approach” (TPA) rises and may rewrite the management rules for trillions of dollars in assets. This new approach discards traditional asset class boundaries and encourages optimization at the portfolio level as a whole, rather than making decisions within isolated asset classes. The latest focus of this trend falls upon the United States’ largest public pension fund—the California Public Employees’ Retirement System (CalPERS). This giant fund, which manages $587 billion in assets, is set to vote this month on whether to adopt TPA. The decision is drawing widespread attention, as it marks a key breakthrough for TPA theory among mainstream institutional investors. If approved, CalPERS will join a cohort of pioneering world-class institutions, including GIC (Singapore’s sovereign wealth fund), Australia’s Future Fund, and the Canada Pension Plan Investment Board. These organizations have begun transitioning to TPA, believing it is better suited than traditional strategic asset allocation models to a turbulent world where market assumptions can easily be upended by surging inflation or geopolitical shocks. For these large asset owners, the adoption of TPA signifies sweeping changes in culture, governance, and infrastructure. While skeptics argue that it is just another fashionable investment acronym, supporters are convinced that TPA brings greater flexibility and resilience to portfolios, helping to meet future uncertainties. CalPERS’ Moment of Change At its September board meeting, CalPERS' newly appointed Chief Investment Officer, Stephen Gilmore, articulated the reasons for transitioning to TPA. He pointed out that under the traditional SAA (Strategic Asset Allocation) framework, asset class teams often only optimize within their own domains, which can cause unintended concentrations of risk or excessive diversification. "If you optimize lots of different asset classes and then add them all up, that's less effective than optimizing for the total," Gilmore said. According to CalPERS’ proposal, the fund will shift from its current 11 independent asset class benchmarks to a single "reference portfolio" consisting of 75% equities and 25% bonds, along with a 400 basis-point active risk budget. Gilmore cited the stellar performance of TPA adopters in his remarks. A joint 2024 report by Willis Towers Watson and the Future Fund reveals that over the past decade, funds using TPA outperformed those using SAA by an annualized 1.8 percentage points. The Flexibility Advantage of TPA The core advantage of TPA is its unparalleled flexibility. Manroop Jhooty, Head of Total Fund Management at Canada’s CPP Investments, believes TPA enables funds to make trade-off decisions that are “somewhat difficult” under traditional SAA frameworks. For example, when private equity allocations rise from a 15% target to 20% due to market valuations, SAA investors may be forced to sell positions in illiquid or disadvantageously priced conditions to rebalance. But TPA funds can treat listed equities and private equity as assets driven by similar risk factors, choosing to reduce liquid public equity holdings to adjust risk exposure. On the other hand, TPA helps identify and avoid unintended risk concentrations. When hot themes like artificial intelligence emerge, investment teams from infrastructure to public markets to private credit may collectively allocate funds to the sector. Even if each category’s allocation stays within target range, the overall portfolio could become dangerously exposed to a single industry. TPA’s holistic view helps guard against such risks. The New York City Retirement Systems reflect this trend, having hired three quantitative managers since 2022 to build analytic tools that track the portfolio's exposures to risk factors such as liquidity and equity sensitivity. Governance Challenges and Realistic Concerns Despite TPA’s clear strengths, its implementation is not without challenges and has sparked widespread industry debate. One of the biggest obstacles is a redesign of governance structures. Under the SAA model, boards set clear goals for each asset class, teams are accountable for benchmark-relative performance, and the mechanism of accountability is straightforward. In the TPA model, boards must grant investment teams much greater discretion. Max Townshend, Head of Investment Strategy at UK’s Local Pensions Partnership Investments, warns: “You might lose accountability for whether your securities selection and asset allocation decisions are actually adding value.” Jayne Bok, Head of Investments for Asia at Willis Towers Watson, worries some institutions may only “pretend” to adopt TPA without the cultural and procedural reforms needed for genuine implementation. She says, “A lot of people say they’re doing it, but they’re essentially just ‘faking it.’” Moreover, there is a lack of consensus on the exact definition of TPA. Some view it as an entirely new investment philosophy, while others see it as an upgrade to the SAA system. Avi Turetsky, Head of Quantitative Research at Ares Management, which oversees $596 billion in private assets, thinks the rise of TPA reflects investors’ increasing interest in the interaction between liquid and illiquid investments, but for now it is “more of a hope” and has yet to mature into a full-fledged system like the “Canadian Model.” Evolution in Practice Successful TPA practitioners offer some valuable experience. Stephen Gilmore, formerly with New Zealand's Superannuation Fund, brings lessons from a pioneering TPA implementer. According to joint CIO Brad Dunstan, when NZ Super started TPA, team members were generalists. As the fund grew, it now organizes staff around five asset class teams, but within TPA’s overall framework has added a tactical overlay team to assess fair value across all assets and capture undervalued opportunities. Dunstan concludes that TPA “lets us move the portfolio more flexibly and to a greater extent.” This model breaks down departmental barriers and ensures coherence in team objectives. “Everyone’s working toward the same goal. You don’t have infrastructure team members saying, ‘I just want to invest in this infrastructure project because it’s my pet.’” This pinpoints TPA’s core cultural aim—collaborating for overall benefit. Risk Disclaimer and Limitation of Liability Markets have risks, and investments should be made with caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, viewpoints, or conclusions herein suit their particular circumstances. Investment is at your own risk.