The Rise of the Total Portfolio Approach
In November 2025, the California Public Employees’ Retirement System (CalPERS) made headlines among allocators in formally adopting the “total portfolio approach” (TPA) investment model, replacing the strategic asset allocation (SAA) model it had previously used for investment decision-making. Guiding this choice in part was a study reporting a 10-year performance difference between TPA users and SAA users of 1.3% per annum among 26 of the world’s largest pension funds and sovereign wealth funds. Concurrently, the California State Teachers’ Retirement System (CalSTRS) has been transitioning towards a similar “one fund approach,” exploring formal adoption of this investment model in 2026.
While TPA is not a new idea—with a select number of institutions having takening a whole portfolio viewpoint by the mid-2000s—it is still not well-defined. At a high level, TPA is a “unified means of assessing risk and return of the whole portfolio.” Some describe it as a “mindset for prepared, purposeful investing;,” others label it “more of an aspiration;,” and some critics call it “all smoke.”
In response to this ambiguity, we review the qualitative and quantitative attributes practitioners have used to define TPA. We begin with an overview of investment model types and how they relate to TPA, followed by what TPA looks like in practice, and conclude with the tradeoffs institutions must consider when moving towards this approach.
Institutional investment models
An investment model codifies how institutions implement their investment approach, combining objectives, philosophies, and governance into an executable allocation strategy. For some groups, there is relatively little flexibility in the model they use. For instance, portfolios matched to known liabilities will use liability-driven investing to ensure obligations are met, minimizing interest rate risk[AB1.1]. It is more often the case, however, that institutions will have discretion over managing liabilities alongside assets, and over generating returns more broadly. This gives rise to the familiar question of how to invest in line with risk tolerances, return goals, and time horizons.
The most common answer to this question has been SAA, whose roots trace to Markowitz’s 1952 paper that founded modern portfolio theory. In short, an investor with beliefs about expected returns, risks, and correlations (i.e., capital market assumptions) across their investable universe can determine the “optimal” asset allocation by specifying either a return objective (minimizing risk) or a risk objective (maximizing return).
Traditional asset allocation models are variations of SAA, including the “classic” 60/40 portfolio of stocks and bonds, or the “endowment model” that invests heavily in inefficient markets like alternatives, among many others. Institutions following SAA have a similar process: a board determines the target return or risk appetite, which is translated into allocation mandates across available asset classes based on capital market assumptions and additional considerations such as illiquidity, leverage, operational capacity, and fees.[1] For an example of how allocations can play out in practice, Figure 1 shows the aggregate allocation across U.S. state and local pension plans.
Other investment models move away from asset class distinctions towards factor-based allocations. Factor-based investing, grounded in modern portfolio theory, gained prominence from Fama and French’s 1993 three-factor model explaining equity returns in terms of market, value, and size effects. Factor funds have since enabled investors to target specific risk factors ranging from momentum to quality. The factor allocation model helps investors focus on diversifying across the drivers of risk and on mitigating hidden concentrated exposures that can be obscured by an asset class-only lens.
Where does TPA fall within this landscape of allocation approaches? It seems that TPA at its core reflects a factor-allocation mindset, but one that manifests differently across institutions depending on their unique circumstances of scale, operations, and stakeholders. TPA bridges the practical familiarity of SAA with the deeper risk awareness of factor-based investing (see Figure 2[TS3.1]). This hybrid nature is precisely what makes TPA both powerful and difficult to define.
The qualitative aspects of TPA
What distinguishes TPA from traditional investment models is less a specific set of tools and more a shift in orientation. Under SAA, investment decisions are often made within asset class silos: a fixed income team manages bonds, a private equity (PE) team manages PE allocations, and so forth. TPA, by contrast, asks decision-makers to evaluate every investment in the context of the whole portfolio: how does this position interact with existing exposures? Does it add genuine diversification, or simply a new label for existing risk?
Practitioners frequently highlight several characteristics that distinguish TPA in practice. First, TPA is dynamic. Where SAA tends towards periodic rebalancing to fixed targets, TPA emphasizes responsiveness to changing market conditions, factor valuations, and portfolio risk levels. Opportunities are evaluated against a portfolio-wide view rather than a bucket-specific mandate. Empirical data bears this out: a 2025 PGIM study of 19 large global investors found that TPA adopters varied their allocations at roughly twice the rate of SAA peers—an average annual allocation change [AB4.1]of 6% versus 3%—with the difference driven by governance model rather than fund size (Figure 3).
TPA in action
Because TPA is a mindset as much as a methodology, it manifests differently across institutions. One useful illustration is the Los Angeles County Employees Retirement Association (LACERA), which restructured its investment operations into four functional asset categories grouped by shared risk and return characteristics: Growth (primarily public and private equity); Risk Reduction and Mitigation (investment-grade bonds, diversified hedge funds, and cash equivalents); Real Assets and Inflation Hedges; and Credit.[1] Two cross-functional teams—portfolio analytics and stewardship—serve all four groups, ensuring a unified view of risk across the organization, as illustrated in Figure 4.
This functional framing differs from a traditional SAA structure in a meaningful way: rather than organizing teams around asset class labels, LACERA’s structure reflects the underlying role each allocation plays in the total portfolio. Growth assets are evaluated together regardless of whether they are public or private. Risk reduction and mitigation assets are mare managed with an eye on their total portfolio contribution, not their standalone performance against a benchmark.
The mechanics of TPA also require new analytical infrastructure. Evaluating investments through a factor lens requires the ability to decompose holdings into underlying risk exposures and to model how potential additions interact with the existing portfolio in real time. This is straightforward for liquid public market assets, but becomes more complex when private market holdings—which lack daily pricing—are included. Some practitioners uses modeled or estimated daily returns for private assets to enable more consistent factor decomposition across the total portfolio. [AB5.1] Building this infrastructure, including tools to simulate liquidity pacing, stress-test capital scenarios, and benchmark private market exposures against peers, can be a significant undertaking, and one we have explored in more detail in our work on private market forecasting and benchmarking.
Challenges in adopting TPA
Despite its appeal, TPA poses significant practical challenges, and a number of critics argue that for many institutions, the benefits may not outweigh the costs.
The most fundamental challenge is data. Implementing a factor-based view of the total portfolio requires consistent, granular holdings data across all asset classes. For most institutions, data sit in disparate systems, often provided by external managers in inconsistent formats. Building the infrastructure to aggregate, normalize, and factor-decompose this data is a substantial undertaking, and the results can be incomplete or unreliable.
Related is the challenge of factor selection. Choosing which factors to use as the organizing framework is both technically and philosophically complex. Factors should ideally be explanatory, independent from one another, and stable over time—criteria that are easier to state than to satisfy. With hundreds of potential factors considered in academic literature and in commercial risk systems, institutions must make difficult choices about which exposures matter most for their portfolio, and they must commit to those choices through periods when their chosen factors may underperform.[1]
Governance presents another friction point. SAA’s asset class silos, while analytically limiting, have governance advantages: responsibilities are clear, benchmarks are well-established, and accountability is straightforward. TPA’s total portfolio lens can blur these lines. A results-oriented approach that evaluates performance through a total portfolio benchmark may reduce attribution by asset class, which critics argue weakens individual accountability.[2]
Size and complexity constraints also matter. For the world’s largest institutional investors—sovereign wealth funds, large public pension plans, and insurers, among others—TPA is practically feasible because they have the internal staff, analytical infrastructure, and governance structures required to implement it. For smaller institutions, the same benefits may be unattainable without significant investments in talents and systems, or without the assistance of specialized service providers and analytical tools.[3]
Challenges in adopting TPA
The adoption of TPA by CalPERS—and the parallel evolution underway at CalSTRS—marks a meaningful moment for institutional investing. Decades after the first institutions began experimenting with whole-portfolio thinking, TPA is entering the mainstream conversation among large allocators.
Whether TPA represents a true paradigm shift, or a rebranding of factor-based investing under a more accessible label is, in some sense, beside the point. What TPA captures is an aspiration to move beyond siloed asset class management towards a more integrated, dynamic, and risk-aware approach to portfolio construction. For institutions with sufficient scale, resources, and governance infrastructure to implement it rigorously, the evidence is encouraging: a 2025 PGIM study of 19 large global investors found that TPA adopters delivered approximately 1.5% p.a. higher returns than SAA peers over the 2008 – 2023 period,[1] with a conservative estimate of ~1.0% p.a. after accounting for methodology limitations, consistent with the 1.3% p.a. TPA advantage reported by the Thinking Ahead Institute. (19)
For others, the lesson may be more modest: even organizations that cannot fully adopt TPA can benefit from its core insights: thinking more deliberately about factor exposures, questioning whether apparent diversification reflects true independence, and anchoring all investment decisions to total portfolio outcomes rather than to silo-specific mandates. In that sense, TPA is not merely a model for the world’s largest pension funds; it is a holistic way of thinking from which any sophisticated allocator may derive new insights.
[1] “Private Markets Outlook 2026,” BlackRock, https://www.blackrock.com/institutions/en-us/insights/thought-leadership/private-markets-outlook.
[2] Tim Jenkinson and Miguel Sousa, “What determines the exit decision for leveraged buyouts?” Journal of Banking & Finance 59 (2015): 399-408, https://doi.org/10.1016/j.jbankfin.2015.06.007.
[3] Jay Ritter, “Initial Public Offerings: Updated Statistics,” February 9, 2026, https://site.warrington.ufl.edu/ritter/files/IPO-Statistics.pdf; Jinny Choi, Kyle Walters, Nicolas Moura, “2025 Annual Global M&A Report,” PitchBook, January 30, 2026, https://pitchbook.com/news/reports/2025-annual-global-m-a-report.
[4] Hugh MacArthur, Rebecca Burack, Graham Rose, Alexander Schmitz, Kiki Yang, and Sebastien Lamy, “Private Equity Outlook 2026,” Bain, February 22, 2026, https://www.bain.com/insights/outlook-gaining-traction-global-private-equity-report-2026/.
[5] Ibid.
[6] Ibid.
[7] Ibid.
[8] Ibid.
