The Rise of Total Portfolio Approach - 33

As we can see from the aforementioned points, TPA
encompasses both 'hard' or tangible factors, and 'soft'
or intangible factors that are interconnected and must
be aligned for successful implementation. Let's explore
these factors further.
Taking the first point. For TPA adopters the mantra that " the
Board owns the SAA " no longer applied. Rather, the Board
managed overall investment risk, often via a reference portfolio
or policy portfolio. This is deceptively simple to say but
devilishly difficult to pull off-to the point that AOs participating
in the study acknowledged that starting from a 'blank
slate' was a core competitive advantage in adopting TPA as
seen in examples such as Future Fund and CPP Investments.
In simple terms, getting the Board to delegate SAA to the investment
team is a prerequisite for TPA success, and a key
driver of increased dynamism in the investment approach.
Moving to the second and third points, TPA adopters abandoned
rigid asset class buckets and adopted a dynamic capital
allocation strategy to achieve their total fund goals. This
shift requires the ability to look beyond conventional asset
class labels and develop the capability to express dynamic
views. This newfound agility is seen as a valuable source
of investment alpha, prompting an expansion of the capital
markets team size and skill set.
The fourth point relates to culture and how teams and individuals
are incentivised based on their contributions to overall
portfolio performance. This aspect presents a more complex
challenge as it involves not only aligning organisational systems
but also shaping behaviour and mindset.
TPA - Not For The Faint-Hearted
By now, it should be abundantly clear that adopting TPA is
a full-on transformation exercise, and not something to be
embarked on lightly. This naturally raises several important
questions. What are the benefits that justify making such a
transition? Is it feasible to shift from one legacy system to
another? What are the costs associated with such an undertaking?
How does one go about doing it, and what can people
learn from others who have navigated this transition to ensure
a higher chance of success? Most importantly, is moving
to TPA the right choice for you?
Developments
The rationale or 'why' behind adopting a dynamic and integrated
investment approach has been discussed previously,
but let's recap. The key reason AOs turn to this approach is
to navigate the increasing complexity of investments, where
traditional governance structures fall short.
The early adopters often had the advantage of a clean
slate, with changes in leadership, mandates, or governance
models providing the flexibility to explore new
strategies. Additionally, the Global Financial Crisis (GFC)
played a crucial role in pushing funds towards alternative
allocation frameworks, redefining risk management
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