Total portfolio approach: a useful concept?

Key takeaways: TPA offers a holistic, goal‑driven approach, but its unstructured nature can complicate governance and performance measurement Much of what TPA advocates mirrors practices already used by integrated managers The optimal path could be selective implementation that combines flexibility with discipline

The total portfolio approach (TPA) has been the buzz of the asset allocation industry following a major pension scheme’s recent move to replace its strategic asset allocation (SAA) model with a TPA. The announcement has reignited debate: is TPA a genuine step forward for asset owners and managers, or simply a repackaging of ideas long familiar to the industry?

In our view, TPA is likely to be most influential for asset owners whose implementation options have historically been constrained, rather than for fully integrated asset managers. At L&G, our Asset Allocation team has long operated with the flexibility, tools and governance structures that allow us to apply the core principles of TPA – while deliberately managing the potential pitfalls. Indeed, our portfolios have demonstrated many of the potential benefits associated with TPA for more than a decade.

What Is total portfolio management?

TPA is often described as a mindset rather than a framework. In practice, it involves moving away from rigid governance structures and placing near-exclusive focus on top-level objectives. Instead of breaking portfolio decisions into smaller, siloed components, TPA encourages flexible, interactive processes in which positions are sized solely with reference to overarching goals.

It is therefore more concerned with how an investment team operates than with adhering to a strict allocation model. The approach has gained traction at a time when governance trends and industry researchers are increasingly questioning structural rigidity and advocating for greater top‑down integration.

Rising portfolio complexity has made traditional silo-based approaches harder to manage. However, the highly interactive, less structured nature of TPA raises its own questions—particularly around accountability and measurability of decision-making success.

The challenges of total portfolio management

While TPA as clear attractions, we do not see it as a universal solution. Highly interactive processes can rapidly become unwieldy, and removing too much structure risks blurring accountability. Pushing customisation too far may also reduce transparency, making performance more difficult to interpret.

Flexibility is unquestionably valuable, but flexibility without boundaries can undermine discipline and consistency. In our view, TPA offers useful principles, but its wholesale implementation should be approached with care.

Our approach

We apply concepts selectively, balancing innovation with structure. We have similarly adopted learnings from other asset allocation models such as classic mean variance, risk parity and the endowment model. We aim to share TPA’s ambition but deliver it through a model that retains some robustness and transparency. 

For example, we retain asset-class building blocks because they provide clarity and a robust framework for decision-making. This structure ensures portfolios remain auditable and governance stays disciplined which is a key advantage that pure TPA can compromise.  At the same time, we incorporate TPA-style thinking where it adds genuine value. For example:

• Outcome‑focused objectives: Many of our funds prioritise outcomes over benchmarks, measuring success through client goals and total return rather than relative index performance.
• Empowered portfolio management: Fund managers own all aspects of their portfolios. Higher level governance focuses on oversight and engagement with managers rather than directive control over allocation or other aspects.
• Integrated portfolio decisions: Portfolios are managed holistically, with consistent decision-making and risk management rather than delegation that could dilute accountability. This also includes managing currency exposures holistically, and applying ESG exclusions and tilts consistently across asset classes where possible.
• Pragmatic diversification: While many allocations are expressed at the asset‑class level, each is assessed through its contribution to risk, beta and underlying factors, looking for true contributions to portfolio diversification. An additional result is that some specialist asset classes such as forestry and catastrophe bonds are implemented directly to get access to specific characteristics rather than whole of market exposures.  
• Leveraging the full L&G investment platform: Close collaboration with colleagues across index, active strategies, responsible investment and trading allow transparency and tailored exposures within asset classes. 

These capabilities allow us to combine flexibility with deep integration in how decisions are implemented. 

We believe that the deeper TPA thinking becomes, it embeds greater potential challenges. Greater complexity and operational demands can accumulate quickly, and accountability, as well as the measurement of success, may become less transparent.

In short, while TPA is an interesting and valuable concept, we do not believe it represents a radical break with existing best practice. Many of its principles already align closely with how we manage portfolios today. Looking ahead, we will continue to refine our approach, adopting the elements of best practice that add value while avoiding unnecessary complexity.

 

Assumptions, opinions, and estimates are provided for illustrative purposes only. There is no guarantee that any forecasts made will come to pass. It should be noted that diversification is no guarantee against a loss in a declining market. Whilst L&G has integrated Environmental, Social, and Governance (ESG) considerations into its investment decision-making and stewardship practices, this does not guarantee the achievement of responsible investing goals within funds that do not include specific ESG goals within their objectives.