Our take on total portfolio approach

While TPA means different things to different practitioners, it points to common aspects of how traditional strategic asset allocation (SAA) should evolve. These include:

• Setting client-specific objectives in the context of the whole portfolio rather than a siloed approach at the asset class level.
• Understanding diversification and risk through a factor lens rather than asset class labels.
• A more dynamic approach to allocation rather than a static, set-and-forget SAA over many years.
• Assessing individual investment opportunities or risks by their portfolio contribution.
• Flexibility for decision makers to drive better performance inside a solid governance structure rather than inefficient constraints on investors.

We have placed greater flexibility at the center of portfolio construction. Why? We have argued that economic transformation, shaped by mega forces such as AI, has important implications for portfolio construction. A wide array of future macro outcomes are possible, reducing the efficacy of long run anchors – the very anchors on which the traditional SAA approach is built. Simply put – solving for a static SAA over many years is inconsistent with today’s world – and investor experience of this in their portfolios leads directly to the desire to search for a new approach to portfolio construction. Our strategic-horizon portfolio construction work, developed over the past decade, is designed to address many of these objectives while adding the detail, definition and governance needed for implementation. Professional investors can read more here. We do this by leveraging our work on capital market assumptions (CMAs) and portfolio construction, Aladdin’s approach to risk, and BlackRock’s understanding of private markets. See Rethinking portfolio construction from February 2026 (for professional investors only).

Investors have different objectives and constraints, yet they will still need a clearly articulated reference portfolio - a high level allocation broadly representing the core problem they're trying to solve. What needs to evolve is how to best beat this benchmark. SAA is embedded in industry practice as a building block and governance framework. Static, set-and-forget mixes built solely through market-capitalization benchmarks may remain appropriate for investors with the most governance constrained investors. Yet others with more investment resources will look for greater flexibility through a whole-portfolio approach less dependent on asset-class boundaries. This will require a new governance structure to manage the increased flexibility.

Investors considering a TPA approach often cite an improved governance process as one potential benefit but can struggle to implement it in practice. The structural benefits are clear. First, TPA better defines the ownership of risk between board and chief investment officer (CIO). Second, it removes frictions created by the common practice of structuring investment teams purely according to narrow silos at the level below the CIO – for example, separate heads of listed equities and private equity with pre-set weights can make relative calls across those exposures harder, as each team may naturally emphasize the case for its own asset class.

Yet the struggle to implement is real. TPA can improve governance at a structural level, but it also creates new challenges. Greater flexibility and freedom can make it harder for boards to hold CIOs to account or understand if they have relinquished too much control. Such flexibility also opens the door to inconsistent decisions without a clear whole portfolio framework. It also creates challenges in implementation across all opportunities in the whole portfolio when teams might want to take similar risk exposures.

A successful implementation of a more flexible portfolio approach requires frameworks for how investment judgement calls are made across the whole portfolio. These include internally consistent risk and return assumptions across private and public assets; a framework for blending alpha, factor and index returns; a scenario approach; and systematic ways of dealing with economic uncertainty. These frameworks maximize flexibility while still holding decision-making to account.

They then need to be used transparently and consistently so each marginal decision is made in the context of the whole portfolio. In particular, the views of all portfolio subcomponents need to be jointly considered when making allocation decisions. Views across public and private markets, alpha and beta, factor and index exposures, and liquidity and drawdown risks should be assessed jointly rather than separately.

This can take several forms, all aimed at making consistent, holistic decisions. For some investors, the means of achieving this may be a CIO bringing all relevant experts together for major allocation decisions, regardless of which portfolio exposures appear most directly affected. For others, the way to make consistent, holistic decisions may be using proprietary research and portfolio-construction tools — such as internally consistent CMAs — to put all required views on a level playing field, so that common assumptions on interest rates, AI or geopolitical risk affect portfolio exposures consistently. Where possible, both can be done together. The process may need to be iterative: all views may be needed throughout because the true trade-offs may not emerge in the first iteration.

Clear decision-making processes are also essential to make trade-offs comparable across the whole portfolio. Governance is about more than investment, requiring structure around teams and incentives.

None by default. TPA does not start by ruling out specific exposure types or management styles. The point is not that one building block is always appropriate and another is not, but that investors need access to the full toolkit to make appropriate whole-portfolio decisions.

That toolkit can include public and private markets, alpha and beta, factor and index exposures, broad and granular exposures, and liquid and less liquid building blocks. The evolution of the eligible investment universe into more granular exposures can help investors target defined market segments, express specific economic exposures more precisely and create more scope to add value.

No. Creating a portfolio through an economic or factor lens is not incompatible with implementing it through assets. The key is that the unit of analysis used to arrive at the asset allocation should not be constrained by asset-class labels. Investors need to map assets to the underlying drivers of risk and return, then implement through the most efficient building blocks available. Today, for many, that will mean asset classes. As the investment universe continues to evolve, there may be even more efficient ways of directly accessing the economic exposures required.

The important point is that at the portfolio construction phase, asset-class labels should not be the only lens for understanding portfolio risk. Different asset classes can carry similar underlying economic exposures, and investments within the same asset class may behave differently. A TPA framework therefore starts with the economic and factor exposures the investor wants across the whole portfolio, then uses granular asset exposures where they best reflect those views.

We define TPA as a portfolio construction framework that allocates capital and risk across the whole portfolio to meet client-specific objectives, defining exposures through underlying economic and factor drivers, integrating public and private markets within a single framework, and assessing all investments by their contribution to total portfolio risk and return. It combines alpha and beta decisions within one process and adapts dynamically as views evolve.

Central to this approach is strong governance: a consistent whole portfolio lens, an integrated research team, clear decision rights, and integrated risk and performance measurement. This helps make decisions comparable, transparent and aligned with whole portfolio outcomes. This governance framework is critical to translating flexibility into disciplined, coherent portfolio construction. The aim is to make clear what TPA means in practice: flexibility translated into disciplined, whole-portfolio construction.

Ultimately, what matters is not the label assigned to a portfolio construction process, but what is done in practice. The aim is to move beyond past legacy approaches, which are no longer fit for purpose, bringing greater flexibility while maintaining disciplined, whole-portfolio construction.

1. Re-underwrite big portfolio calls frequently: We advocate revisiting big portfolio calls more often as we learn over time how the transformation plays out. Establish an explicit Plan B portfolio to pivot to, if required.
2. Establish a common whole portfolio lens: Look beyond asset class labels, and consider whole portfolio exposures based on economic and factor drivers of return and risk.
3. Implement holistic risk budgeting: Transformation creates dispersion in outcomes – we think investors should have an explicit and holistic budgeting of risk between alpha and beta. Instead of broad asset classes, we think investors should get more granular with exposures.
4. Employ robust frameworks to enable dynamic decision making: Our research provides frameworks for making whole portfolio decisions through internally consistent CMAs, such as sizing private market allocations. We track key investment calls and incorporate lessons learned into the research process.