Practical considerations for a ‘total portfolio approach’
A ‘total portfolio approach’ can lead to more dynamic decision making, but it requires profound organisational change and shifts in responsibilities.
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We have observed a growing trend of large asset owners considering or implementing a "total portfolio approach" to managing their assets.
The common features across the funds implementing this approach are that their starting point is a target return for the whole portfolio, as opposed to a market benchmark. Portfolio construction decisions are taken in reference to their impact on the portfolio as a whole, rather than being a relative return decision in a specific asset class sleeve.
Within our multi-asset team we have been managing portfolios in this way for over ten years.
In this practical guide we share some of our experiences and highlight a number of reflections for asset owners considering implementing a total portfolio approach. We have found that:
- The governance model is different with the total portfolio approach, in that the board is no longer responsible for setting a strategic asset allocation and instead needs to delegate greater decision-making authority to the investment team;
- To compare investments across different asset classes requires a common language and a robust data set;
- Culture and incentives are critical to get right to encourage total portfolio thinking. We would be delighted to discuss this in more detail with you and also share some of our observations from working with other asset owners who are using this approach.
You can read the full report here.
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