The Rise of Total Portfolio Approach - 28

tition for capital conversation must address whether
an asset makes a sufficient contribution to portfolio
performance per unit of liquidity consumption.
Pulling it Together
An effective competition for capital conversation
involves comparing multiple metrics across multiple
investments, which is cognitively challenging. To
maximise the likelihood of a good conversation, it's
imperative to support it with high-quality information
presented in an easily digestible form. This helps
keep the conversation focused on the key information
and prevents it from being derailed by debates about
whether a particular metric is calculated correctly or
by personal preferences and personalities dominating.
At NZ Super, we have built a series of online reports
that bring the relevant pieces of information together
(return, risk, liquidity, resourcing, etc.) in a way that
supports the competition for capital conversation.
While requiring assets to compete for capital may
sound like an obvious way to build a portfolio, given
that investment teams are often siloed and investment
frameworks often lack the requisite flexibility,
it is less common than might be imagined. Another
reason is that it's complex to compare all assets in
a portfolio. It requires effort in curating the right information
and presenting it in a digestible way that
is conducive to drawing holistic comparisons between
investments. Yet another reason is culture and/or
misalignment of incentives, as investment teams
without a strong total portfolio culture are likely to
bring a parochial and/or defensive mindset to total
portfolio conversations. We'll turn to that next.
Key Lessons
Evaluate each new investment against the
entire investable universe.
Allow for nimbleness and shorter-term
investment opportunities.
If the new investment skews the portfolio
factor weights, adjust the portfolio by selling
an investment or implementing an overlay.
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The Rise of Total Portfolio Approach

Table of Contents for the Digital Edition of The Rise of Total Portfolio Approach
