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Total Portfolio Approach: a practitioner’s guide

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Institutional investors are reassessing how they construct and manage portfolios amid a shifting market regime and correlation dynamics, heightened uncertainty, and the expanding role and complexity of private markets. In this environment, a clearer understanding of how the portfolio supports the broader enterprise has become central to decision-making. These considerations underscore a simple but often overlooked truth: While seeking to realize its investment objectives, a portfolio also must account for the mission, balance sheet, and operational realities of the institution it underpins.

These forces have accelerated interest in the Total Portfolio Approach (TPA). As our colleagues in the BlackRock Investment Institute recently highlighted, BlackRock has long embraced an evolving asset allocation approach to help investors manage portfolios holistically and dynamically.

For institutions considering TPA, we build on that work by sharing some of our observations and best practices below, informed by our work with asset owners across a range of objectives and constraints. Adopting a TPA is not only embracing an investment philosophy, but also an evolution in operating model. Realizing its full benefits depends on effective implementation, ongoing management, and robust governance.

Capital efficiency & alpha integration

Capital efficiency is central to a total portfolio approach, focusing risk and capital on opportunities with the greatest expected contribution to portfolio outcomes. By separating alpha and beta exposures, investors gain greater flexibility to access alpha where it is most abundant while maintaining deliberate market exposures. This framework also supports more effective alpha integration, combining diversified top-down and bottom-up sources of return to create differentiated and additive portfolio-level outcomes.

Case Study: Diversified alpha sourcing can improve client outcomes

Cumulative net of fee alpha for $1B plan

Source:

The figures shown relate to past performance. Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or a strategy. Indices are unmanaged and cannot be invested into directly. Source: BlackRock, as of December 31, 2025.

A $1 billion public pension plan sought to improve excess returns while maintaining a consistent and repeatable source of alpha across changing market environments.

Our Global Tactical Asset Allocation (GTAA) Team integrated top-down alpha insights alongside existing bottom-up strategies, creating a more diversified and balanced alpha framework.

The combined approach increased cumulative net alpha, enhanced the consistency of excess returns, and resulted in a higher ending portfolio value relative to the benchmark.

Optimization of public & private markets

A total portfolio approach integrates public and private markets within a unified risk-and-return framework, breaking down traditional silos and enabling more effective portfolio-level decision-making. By evaluating investments holistically, investors can better capture the complementary characteristics of liquid and illiquid assets, enhancing both portfolio efficiency and resilience. Within this framework, liquidity management becomes a strategic consideration, proactively balancing near-term liquidity needs against long-term return objectives.

Case Study: Integrated portfolio construction supports long-term portfolio growth

Illustrative private markets deployment paths for various withdrawal, contribution and net cashflow scenarios

Source:

For illustrative purposes only. Forward-looking estimates may not come to pass. Source: BlackRock as of 30 May 2025. There is no guarantee that stress testing will eliminate the risk of investing in this fund or strategy.

A non-profit institution sought to preserve its 30% private markets allocation target while ensuring sufficient liquidity to fund a significant upcoming strategic expenditure.

Our client CIOs evaluated multiple capital deployment scenarios and conducted liquidity stress tests to assess the portfolio's ability to meet spending needs under a range of market conditions.

The analysis supported maintaining the 30% private markets allocation while extending the spending timeline to three years, reducing liquidity risk without sacrificing long-term return potential.

Forward-looking risk management

Effective risk management extends beyond traditional diversification, incorporating stress testing and scenario analysis to assess portfolio resilience across a range of market and macroeconomic environments. A factor-based perspective provides deeper insight into the underlying drivers of risk - such as growth, inflation, and real rates - helping investors identify hidden concentrations and potential tail risks. Combined with disciplined governance and ongoing reassessment, this dynamic approach helps ensure portfolio exposures remain aligned with investment objectives as market conditions evolve.

Case Study: Dynamic allocation can promote portfolio resilience

Source:

Holdings can change at any time and are provided for informational purposes only and should not be deemed as a recommendation to buy or sell the securities mentioned or securities. Source: BlackRock, for illustrative purposes only. Allocations will be subject to change. Data as of 31 March 2020.

During the COVID-driven market volatility of early 2020, rapidly changing market conditions increased downside risks across equities, credit, and currencies.

The Diversified Strategies Team proactively repositioned their portfolio through a combination of targeted hedges, including volatility, currency, and credit protection strategies, alongside a reduction in equity exposure.

These actions helped mitigate downside risk, preserve portfolio flexibility, and support strong performance relative to broader market benchmarks during a period of extreme uncertainty.

Governance & the operating model

Effective governance empowers investment teams with implementation authority under clearly defined objectives, risk tolerances, and constraints, enabling timely and accountable decision-making. By organizing around total portfolio outcomes rather than asset-class silos, investors can foster greater collaboration, knowledge sharing, and portfolio-level thinking across teams. Supported by a common risk framework and forward-looking reporting, this structure strengthens oversight, accountability, and decision-making by aligning boards and investment teams around shared portfolio objectives and risks.

Transcript
For Professional Clients, Qualified Investors and Qualified Clients only. One of the most important - and often overlooked enablers of a total portfolio approach - is governance. TPA is fundamentally a governance model, before it is an investment model. Under a traditional strategic asset allocation framework, the Board's primary role is to approve asset class targets and monitor compliance against those targets. Under a TPA framework, the board shifts from governing asset allocations, to governing outcomes, risk budgets and decision-making authority. In a well-functioning TPA model the board defines: • investment objectives • risk tolerance • liquidity requirements • time horizon • and governance guardrails The portfolio management team then determines how capital should be allocated across all available opportunities to achieve these objectives. In other words, the board decides “what success looks like”, while the investment team decides “how to achieve it” This distinction is one of the defining characteristics, separating leading TPA adopters from more traditional asset allocation models. Successful TPA organisations recognise that investment opportunities often emerge faster than board meeting cycles. Boards establish guardrails, while delegating day-to-day capital allocation decisions to the chief investment officer and their investment team. The primary governance question becomes “are we comfortable with the level of risk being taken” rather than “should private equity be 15% or 18%” TPA governance requires boards to assess success at the total fund level. The objective is not to maximise returns within specific asset classes, but to generate a targeted excess return over the reference portfolio through the combined contribution of all return sources. The best TPA governance models are characterised by • clear objectives • explicit risk budgets • strong delegation • and rigorous accountability They avoid governing through asset class quotas and instead govern through outcomes and risk. The result, is a system where investment teams can dynamically allocate capital across the opportunity set, while remaining firmly anchored to board-approved objectives, risk limits and the long-term mission.

BlackRock has long partnered with asset owners globally to design, implement and refine Total Portfolio Approaches across a wide range of objectives, constraints and market conditions. Drawing on deep experience across public and private markets, active and index strategies, risk management and portfolio construction, we work closely with clients to translate TPA principles into practical, implementable and tailored solutions. With the right partnership, capabilities and commitment, investors can position their portfolios to better meet their objectives, not just through this current cycle, but across the full range of markets ahead.

Image of Ryan-Marshall
Ryan Marshall
Global Head of Multi-Asset Strategies & Solutions
Nikhil Mehra
Head of APAC Multi-Asset Strategies & Solutions
Adam Ryan
Adam Ryan
Chief Investment Officer of Multi-Alternatives and Head of Diversified Strategies within Multi-Asset Strategies & Solutions (MASS)
Edward Ng, CFA
Edward Ng, CFA
Americas Endowments, Foundations and Healthcare Systems OCIO, BlackRock's Multi-Asset Strategies & Solutions Group
michael.pensky_blackrock.com
Michael Pensky, CFA
Deputy CIO, Portfolio Manager, Global Tactical Asset Allocation

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