Having attended several conferences this year, I’ve noticed that we are all hearing much less on individual asset classes and instead far more attention is now being paid to the total or holistic, portfolio, of investors.

The last two years have seen significant changes in the asset management industry, but this shift towards looking at the whole portfolio has implications for asset managers.

The ‘Total Portfolio Approach’ (TPA) isn’t new. It was first espoused by The Thinking Ahead Institute’s Roger Urwin in the mid-2010s, and Roger remains one of its strongest proponents. Yet the importance of the concept in shaping how investors have moved from strategic asset allocation, thinking in silo’s, to thinking about how they allocate capital and diversify risk across the total portfolio, to meet their overarching mission, TPA is not easy to define, and is arguably a mindset shift, but can be thought of as a way to integrate and dynamically manage the total portfolio..

There are lots of reasons why the concept, having been part of investment discourse for so long, is gaining traction now. What is clear though is that this resurgence is being driven by investors themselves, rather than by asset managers or consultants.

Industry dynamics have certainly played a part, with consolidation among underlying investors, most notably in the institutional market, creating much larger pools of assets that arguably need to be managed more strategically. Emerging investment opportunities in areas such as private markets have also played a part in increasing interest. This is partly because as investors make allocations to areas such as private equity, private credit and infrastructure they can find themselves concentrated in certain sectors, something which is not easy to see in traditional SAA approaches. 

In parallel, we have seen a reshaping of investor audiences. This isn’t to say overarching objectives have altered significantly. I don’t think that’s the case. In the pensions and insurance sectors the priority remains the meeting of liabilities, while in other areas such as wealth it is about ensuring long term growth in real assets. These changes have led to investors wanting to adopt a more holistic approach and be able to take advantage of opportunities as they arise. 

Added to this are substantial improvements in the quality and availability of data, which has provided investors with much greater insight and ability to track their portfolios as a whole, rather than by individual asset classes or even managers. 

Market dynamics have also played a part. After a long – over a decade – period of relatively benign conditions, we’re now very clearly in a period of greater uncertainty and volatility. Admittedly many asset classes have continued to outperform, though in some cases and certainly with respect to equities, this can be argued to have been driven by specific sectors which has raised concerns around concentration risk. Investors are increasingly aware of this and being more thoughtful towards the overall risk in their portfolios as a result.

A number of large investors have been quite vocal on this trend and their focus on adopting a Total Portfolio Approach. If any evidence were needed, the statement by CalPERS (one of the largest institutional asset owners in the world) last November that it was adopting a new TPA methodology has put it top of the agenda for many investment conferences, and increasingly, investors’ minds.  

The implications for asset managers of this growing shift in mindset and approach is sizeable.

My sense today is that while there is a growing acknowledgement among asset managers of TPA adoption, too few are responding. There are potential commercial implications at stake and asset managers would be well advised to think through the implications.

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