The rise of total portfolio thinking

Institutional investors are increasingly rethinking how they build and manage portfolios and ditching rigid asset class silos in favour of a total portfolio approach (TPA).

While it's not exactly new, Capital Group’s Gene Podkaminer believes what’s different now is how pension plans are putting the pieces together.

"The total portfolio approach, by definition, is going to mean different things to different people and different types of asset owners," noted Podkaminer, senior asset allocation strategist at Capital Group. "But the way that they’re woven together in TPA makes for a more coherent conversation than each thread on its own."

At its core, TPA shifts the focus from managing portfolios in isolated asset-class silos to viewing the entire portfolio through a unified lens. That includes incorporating liabilities into investment thinking, even for plans not legally required to manage to surplus. It also means evaluating success at the plan level, not just by performance metrics, but by how well the portfolio aligns with long-term objectives.

Podkaminer challenged the idea that simply having a wide mix of assets in a portfolio guarantees true diversification. He argues that many investors fall into the trap of "diversification in name only.”

What appears diversified on a pie chart might not be especially when different asset classes are driven by the same underlying risks. For instance, an equity investment with low beta and a high-yield bond may sit in separate asset buckets, but if both respond similarly to market shifts, they aren't providing meaningful diversification, he said.

It's one of the main reasons he believes the total portfolio approach adds value; it forces investors to move beyond labels and look at the true exposures each asset contributes.

But he's also clear that adopting TPA doesn't automatically lead to better diversification. As Podkaminer emphaszied, “it depends how it’s implemented,” he said, cautioning that simply claiming to follow a TPA framework without changing evaluation methods or organizational decision-making misses the point entirely.

Additionally, TPA isn't just about investment choices but about governance. Podkaminer believes the approach pushes organizations to re-examine decision rights, reporting structures, and incentive alignment. These governance aspects, he said, are not separable from investment strategy but integral to it, particularly as every fund is adapting TPA “in their own unique way.”

Podkaminer draws a sharp contrast between the traditional investment process and the TPA, arguing that the conventional step-by-step model is too fragmented and outdated to address the complex goals of institutional investors today.

He believes step zero involves defining whether the assets are tied to actuarial liabilities or simply broad objectives. Step one focuses on traditional long-term strategic asset allocation, aiming to optimize returns for a given level of risk. Step 1A introduces tactical deviations from the strategic plan, while step two is all about implementation and allocating risk and selecting managers within rigid asset-class silos.

The problem, he added, is that most of the portfolio is still being managed in pieces, with little attention paid to how investments work together or whether they're being benchmarked correctly against opportunity cost. 

"We've now chopped the world up into pretty discrete silos so that we have tractable problems within each one," Podkaminer said.

However, one of the most practical advantages of the TPA is its ability to cut through organizational noise and clarify decision-making. With traditional investment models, it's often ambiguous who’s responsible for what and how success is defined. But he believes TPA changes that.

"One of the big benefits of something like a total portfolio approach is much more streamlined stakeholder communication," he said. "It's clearer who makes what decisions and also clear what success looks like,” citing several Asia-Pacific pension funds, particularly in Australia, New Zealand, and Singapore, for leading the way in this space.

He also argues that TPA gives investment teams the space to step back and rethink how decisions are made. This rethinking is especially relevant as pension plans continue their shift toward private markets. After all, infrastructure, real estate, private equity, and credit have all become staples in institutional portfolios.

Still, the rise of alternatives introduces a new set of challenges. Whereas public assets are typically diversified, liquid, and priced daily, in contrast, private assets are more opaque and heavily dependent on manager selection. That makes traditional strategic asset allocation less effective at evaluating them on equal footing.

Podkaminer suggests TPA helps resolve this disconnect by forcing investors to focus on underlying exposures instead of labels. It’s not about whether an asset is called private equity or real estate, what matters is its role in the portfolio’s risk, return, and macro sensitivity.

"It’s more so about taking a deeper look and understanding what this brings to the portfolio. Less what something is called and more what it does," he said.

While Podkaminer doesn’t see the TPA as a silver bullet for investors, he does see its value in forcing harder questions. Even if it's not universally or perfectly adopted, he believes the conversations it provokes are necessary.

TPA isn’t about reinventing the wheel either, he said. Rather, it’s about pulling together long-standing concepts, like risk budgeting, holistic thinking, and organizational alignment, into a more structured and intentional framework.

“Even if you never get to the promised land of the theoretically perfect adoption of TPA, which, by the way, nobody's going to get there because it's all messy in the way that this comes together,” he said.

What ultimately matters is the shift in mindset it encourages, said Podkaminer, adding that the real benefit is getting institutional investors to pause and challenge their assumptions around why they’re allocating risk a certain way, whether they’re truly diversified and determining what outcome they’re actually targeting.

"If it allows asset owners to more critically examine what diversification means to them, what success means to them, then that's a really positive thing," he added.