The Total Portfolio Approach is an A La Carte Menu

The Total Portfolio Approach is an A La Carte Menu
December 29, 2025 14 mins

The Total Portfolio Approach is an A La Carte Menu

The Total Portfolio Approach: Innovation or Rebranded Ideas

The Total Portfolio Approach recently has gotten a lot of attention from institutional investors, yet it is often described in a way that is abstract and doesn’t concretely represent the realities of how it is implemented.

The opinions referenced are as of the date of publication and are subject to change due to changes in the market or economic conditions and may not necessarily come to pass. Nothing in this document should be construed as legal, tax or investment advice. Please consult with your independent professional for any such advice.

Executive Summary

  • The Total Portfolio Approach (TPA) is implemented in many different ways, so it is more informative for us to describe our views on specific aspects rather than state an overall blanket view on the approach as a whole.
  • We recognize that not all “aspects” of TPA are implemented by its current users, and also that many aspects have been used by non-TPA institutions for decades.
  • The aspects of “TPA” that we typically support include:
    • The “TPA mindset” that risk should be viewed at the total portfolio level rather than in silos
    • Flexibility in implementation
    • Coordination of risk exposures
    • Managing risk in multiple ways
    • Avoiding overdiversification
    • Delegation to investment teams
  • The aspects of TPA that we find concerning are when there’s insufficient oversight, too much flexibility, or hasty transitions, such as:
    • No target allocation, Reference Portfolio, or standard benchmark
    • Target allocations or Reference Portfolios that are unrepresentative of the actual allocation
    • Excessive flexibility in implementation
    • “Big bang” implementation of major changes all at once

Introduction

The Total Portfolio Approach recently has gotten a lot of attention from institutional investors, yet it is often described in a way that is abstract and doesn’t concretely represent the realities of how it is implemented. TPA means different things to different people, and there is a wide range of practices used by proponents of TPA. These “TPA practices” blend new approaches with rebranding of strategies that have been around for decades, many of which are widely used without being described as “TPA” by those doing them. Those looking to understand TPA must realize that it is not a well-defined approach.

It is an approach with a high level of delegation to the investment team to implement a highly active investment strategy, and there are many ways institutions implement that under the TPA umbrella.

Because TPA means so many different things to different people, it would be a disservice to say we either “like” or “dislike” TPA. Instead, it is more constructive to articulate which aspects of TPA we like and dislike, and for what kinds of institutions. In that sense, we will treat TPA like an a la carte menu where investors can pick and choose what they like.

What is the Total Portfolio Approach?

In our white paper “The Total Portfolio Approach: New Innovation or Rebranded Old Ideas?,” we wrote in detail about what TPA is—both the theory and practice—so we will only summarize it here. Proponents of TPA have said “TPA is not a monolithic methodology that can be applied off the shelf,” and further that “TPA is not a specific model with a singular destination, but rather a range of approaches.”1 Some have even said that “TPA is not a strategy, but a mindset—centered on preparedness rather than rigid planning.”2 As a result, it is not possible to describe TPA with exact precision.

TPA is an umbrella term for a range of approaches to asset allocation and portfolio construction that are less constrained than traditional Strategic Asset Allocation used by institutional investors, and TPA typically involves giving an unusually high degree of discretion to the investment team to make decisions about implementation. We view it as the most active end of the spectrum of approaches to active management, as shown in the following exhibit.

The Total Portfolio Approach Diagram

Aspects of TPA Aon Likes

There are several aspects of TPA that Aon likes, which we have recommended to many of our clients3 for a long time—in some cases, multiple decades, since before TPA existed:

  • The “TPA Mindset.” This is looking at investment strategies in terms of how they impact the whole portfolio, rather than in asset class silos. For example, the attractiveness of an investment strategy is related to how well it diversifies the rest of the portfolio, rather than its stand-alone risk and return properties or fit within an asset class bucket. We find it ironic that some TPA proponents seem to claim that TPA invented this approach, though it has been coded into U.S. law for ERISA fiduciary requirements for decades prior to TPA being invented.4
  • Flexibility in Implementation. Market conditions can influence the preferred way to build a portfolio, and absolute rigidity in the way a portfolio must be constructed is often suboptimal. Investment policies with an appropriate level of flexibility have advantages. That flexibility can come in different forms, such as the ability to take relative value positions with an asset class, tilt across asset classes, or allocate to an investment that doesn’t fit neatly into any of the asset classes in the policy.
  • Coordination of Risk Exposures. This helps identify common risks across the portfolio in different asset classes, and, if done well, ensures this risk is well-managed. The most common risk exposures to coordinate are often the largest ones that span multiple asset classes, such as equity beta, illiquidity, credit, and currency.
  • Managing Risk in Multiple Ways. Risk should be managed beyond just looking at minimum and maximum allocations to physical asset classes. TPA is known for using factor risk exposures as another way to help manage risk, sometimes even including policy targets for specific factors. Some other TPA implementers use tracking error at the portfolio level to manage risk. We believe looking at risk from several angles can be valuable.
  • Avoiding Overdiversification. Some portfolio approaches require full diversification of each asset class, regardless of how small its allocation, rather than considering diversification only at the portfolio level. This results in overdiversification, which has too many investment managers and too small weights for the highest conviction strategies. We believe that many large funds have too many managers, and we’ve expressed this concern for over a decade, including our 2013 article “Diversification – How Much is Too Much?”5
  • Delegation to Investment Teams. Boards and investment committees should provide oversight and direction for the investment program, but typically they are insufficiently nimble or in-the-weeds to be in the best position to make decisions about the day-to-day management of complex portfolios. Because of this, we believe that it is often healthy for them to delegate some responsibility to the investment implementers—whether that be an internal investment team, outsourced chief investment officer, asset manager, or a combination. The specifics of this should depend on the specific circumstances of the portfolio and skills of the implementers.

Concerning Aspects of TPA

It is important to caveat this list by noting that many institutions using TPA do not have these features in their implementation approach, but all are represented across various implementation models.

  • No Target Allocation, Reference Portfolio, or Standard Benchmark. This is sometimes done based on the premise of focusing on the investor’s overall objectives, rather than anchoring to an allocation or benchmark. The governing body may only state a non-investable objective, such as an absolute return or real return target, leaving it purely up to the implementer to determine the actual portfolio. There is no reliable way to evaluate performance and assess how they did relative to the broad opportunity set available, making it difficult to monitor performance or have accountability for performance. Those overseeing the implementers should have a reliable way to assess their performance. Further, if the institution is expected to report to the public, which is typical of most governmental institutions, then it should provide a transparent way for the general public to assess the performance of its active management decisions.
  • Target Allocations or Reference Portfolios that are Unrepresentative of the Actual Allocation. Some institutions using TPA have up to 25-50% alternative assets in their actual portfolio, though their governing bodies (board or investment committees) have neither approved nor disapproved such allocations. This is almost by design, where the guidance from the governing body could be a Reference Portfolio that is all public equities and fixed income, without any formal guidance on the known fact that the actual portfolio is so different. Importantly, much of the 25-50% in alternative assets is in private markets that are difficult to get in and out of quickly, so timing would not prevent a slow-moving board from weighing in on the allocation to alternative assets. Some institutions may say that the implementers informed and consulted with their governing bodies, but an “inform” is a much lower level of oversight than an “approval.” To be clear, we do not think the governing body needs to approve every commitment to a manager or have complete control of the allocation, but it should be approving large chunks at the asset allocation level.
  • Excessive Flexibility in Implementation. While we support a certain level of flexibility in implementation, there are limits to what we believe is good governance. Further, those limits should be well-defined in the investment policy to provide clarity. TPA can theoretically allow extreme levels of flexibility, and sometimes it is even considered a feature that “no asset is guaranteed a place in the portfolio” because of the “competition for capital.” While we support these ideas conceptually, they can be taken to extremes where the policies have little guard rails, and most institutional governance structures aren’t geared to support it, as Boards and committees tend not to have the patience to tolerate the inevitable periods of poor performance. In practice, we’ve seen that most institutions using TPA are managing the portfolios prudently, but the policies are not always written with sufficient controls. We believe that governance is better with clear guardrails that represent how the portfolio is expected to be managed.
  • “Big Bang” Implementation. We find it concerning when an institution makes major changes to its investment process all at once. A phased implementation would be more prudent in most cases.

These concerns could be summarized as weak governance, where the implementers are allowed free rein without sufficient oversight or accountability. Again, we note that this isn’t an inherent situation with TPA or representative of all institutions using TPA, but it is our concern about some versions of TPA.

Conclusions

In practice, TPA is like an a la carte menu, where implementers choose which aspects of it to incorporate into their portfolios. We support considering risks in terms of how they affect the whole portfolio, flexibility in implementation, and prudent levels of delegation of authority to the implementers. We are concerned with insufficient oversight in implementation and big changes in process all at once.

When a client asks for our advice as they consider TPA, they should expect us to scrutinize their investment and risk capabilities thoroughly, consider their strengths and weaknesses, and suggest an approach that is prudent for their situation. For investors interested in adopting elements of TPA, we would favor a phased approach to embracing elements of flexibility and delegation, with a well-constructed framework for risk management.

1 “Innovation Unleashed: The Rise of Total Portfolio Approach.” CAIA. 2024.
2 Redouane Elkamhi and Jacky S. H. Lee. “Total Portfolio Approach.” The Journal of Portfolio Management. Portfolio Manager Perspectives 2025, 51 (8) 109 – 127.
3 There is no guarantee that results or savings will be achieved if you should select AIUSA and/or its affiliated entities to provide services to you. The experience described does not represent all recommendations made to clients nor does it represent the experience of all clients. The reader should not assume that an investment in any securities identified or a particular recommendation was or will be profitable or favorable.
4 The U.S. Department of Labor’s portfolio level prudence standard says that when evaluating an investment, a fiduciary must give “appropriate consideration” to “the role the investment or investment course of action plays in that portfolio of the plan’s investment portfolio or menu with respect to which the fiduciary has investment duties.” This is interpreted to mean that fiduciaries must evaluate each asset in the context of the plan’s total portfolio. 29 CFR § 2550.404a-1 (https:// www.law.cornell.edu/cfr/text/29/2550.404a-1). The third party sites linked in this document contain information that has been created, published, maintained or otherwise posted by institutions or organizations independent of AIUSA. AIUSA does not endorse, approve, certify or control these websites and does not assume responsibility for the accuracy, completeness or timeliness of the information located there.
5 Friedman, Eric. “Diversification – How Much is Too Much?” 15 May 2013.

 

Aon’s Thought Leader
  • Eric Friedman, CFA, FSA, EA
    Investment Analytics and Strategy Development, Aon Investments USA Inc.

General Disclaimer

The information, materials and opinions contained in this document, enclosures or attachments are for general information purposes only, are not intended to constitute legal or other professional advice and should not be relied on or treated as a substitute for specific advice relevant to particular circumstances. We make no warranties, representations or undertakings about any of the content of this document and any enclosures or attachments (including, without limitation, any as to the quality, accuracy, completeness or fitness for any particular purpose of such content). Unless we provide express prior written consent, no part of this document should be reproduced, distributed or communicated to anyone else and, in providing this document, we do not accept or assume any responsibility or duty of care in respect of this document, enclosures or attachments to any party including a Aon client. Notwithstanding the level of skill and care used in conducting due diligence into any organisation that is the subject of a rating in this document, it is not always possible to detect the negligence, fraud, or other misconduct of the organisation being assessed or any weaknesses in that organisation’s systems and controls or operations. This document and any due diligence conducted is based upon information available to us at the date of this document and takes no account of subsequent developments. In preparing this document we may have relied upon data supplied to us by third parties (including those that are the subject of due diligence) and therefore no warranty or guarantee of accuracy or completeness is provided. We cannot be held accountable for any error, omission or misrepresentation of any data provided to us by third parties (including those that are the subject of due diligence). This document is not intended by us to form a basis of any decision by any third party to do or omit to do anything. Any opinions or assumptions in this document have been derived by us through a blend of economic theory, historical analysis and/or other sources. Any opinion or assumption may contain elements of subjective judgement and are not intended to imply, nor should be interpreted as conveying, any form of guarantee or assurance by us of any future performance. Views are derived from our research process and it should be noted in particular that we can not research legal, regulatory, administrative or accounting procedures and accordingly make no warranty and accept no responsibility for consequences arising from relying on this document in this regard. Calculations may be derived from our proprietary models in use at that time. Models may be based on historical analysis of data and other methodologies and we may have incorporated their subjective judgement to complement such data as is available. It should be noted that models may change over time and they should not be relied upon to capture future uncertainty or events. THIS MATERIAL DOES NOT CONSTITUTE AN OFFER OR SOLICITATION OF A FINANCIAL PRODUCT OR FINANCIAL SERVICE IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT WOULD BE UNAUTHORIZED OR UNLAWFUL TO DO SO. Any such prohibited offer or solicitation is void and Aon will disregard any communication received in respect thereof. When distributed in the UK, Aon Investments Limited is authorized and regulated by the Financial Conduct Authority. Registered in England & Wales No. 4396810. When distributed in the US, Aon Investments USA Inc. (“AIUSA”) is a registered investment adviser with the Securities and Exchange Commission (“SEC”). AIUSA is a wholly owned, indirect subsidiary of Aon plc. When distributed in Canada, Aon Solutions Canada Inc. and Aon Investments Canada Inc. (“AIC”) are indirect subsidiaries of Aon plc, a public company trading on the NYSE. Investment advice to Canadian investors is provided through AIC, a portfolio manager, investment fund manager and exempt market dealer registered under applicable Canadian securities laws.

Terms of Use

The contents herein may not be reproduced, reused, reprinted or redistributed without the expressed written consent of Aon, unless otherwise authorized by Aon. To use information contained herein, please write to our team.

Aon's Better Being Podcast

Our Better Being podcast series, hosted by Aon Chief Wellbeing Officer Rachel Fellowes, explores wellbeing strategies and resilience. This season we cover human sustainability, kindness in the workplace, how to measure wellbeing, managing grief and more.

Aon Insights Series Asia

Expert Views on Today's Risk Capital and Human Capital Issues

Aon Insights Series Pacific

Expert Views on Today's Risk Capital and Human Capital Issues

Aon Insights Series UK

Expert Views on Today's Risk Capital and Human Capital Issues

Client Trends 2025

Better Decisions Across Interconnected Risk and People Issues.

Construction and Infrastructure

The construction industry is under pressure from interconnected risks and notable macroeconomic developments. Learn how your organization can benefit from construction insurance and risk management.

Cyber Resilience

Our Cyber Resilience collection gives you access to Aon’s latest insights on the evolving landscape of cyber threats and risk mitigation measures. Reach out to our experts to discuss how to make the right decisions to strengthen your organization’s cyber resilience.

Employee Wellbeing

Our Employee Wellbeing collection gives you access to the latest insights from Aon's human capital team. You can also reach out to the team at any time for assistance with your employee wellbeing needs.

Environmental, Social and Governance Insights

Explore Aon's latest environmental social and governance (ESG) insights.

Q4 2023 Global Insurance Market Insights

Our Global Insurance Market Insights highlight insurance market trends across pricing, capacity, underwriting, limits, deductibles and coverages.

Global Risk Management Survey

Better Decisions Across Interconnected Risk and People Issues.

Regional Results

How do the top risks on business leaders’ minds differ by region and how can these risks be mitigated? Explore the regional results to learn more.

Top 10 Global Risks

Trade, technology, weather and workforce stability are the central forces in today’s risk landscape.

Industry Insights

These industry-specific articles explore the top risks, their underlying drivers and the actions leaders are taking to build resilience.

Human Capital Analytics

Our Human Capital Analytics collection gives you access to the latest insights from Aon's human capital team. Contact us to learn how Aon’s analytics capabilities helps organizations make better workforce decisions.

Human Capital Quarterly Insights Briefs

Read our collection of human capital articles that explore in depth hot topics for HR and risk professionals, including using data and analytics to measure total rewards programs, how HR and finance can better partner and the impact AI will have on the workforce.

Insights for HR

Explore our hand-picked insights for human resources professionals.

Workforce

Our Workforce Collection provides access to the latest insights from Aon’s Human Capital team on topics ranging from health and benefits, retirement and talent practices. You can reach out to our team at any time to learn how we can help address emerging workforce challenges.

Mergers and Acquisitions

Our Mergers and Acquisitions (M&A) collection gives you access to the latest insights from Aon's thought leaders to help dealmakers make better decisions. Explore our latest insights and reach out to the team at any time for assistance with transaction challenges and opportunities.

Natural Resources and Energy Transition

The challenges in adopting renewable energy are changing with technological advancements, increasing market competition and numerous financial support mechanisms. Learn how your organization can benefit from our renewables solutions. 

Navigating Volatility

How do businesses navigate their way through new forms of volatility and make decisions that protect and grow their organizations?

Parametric Insurance

Our Parametric Insurance Collection provides ways your organization can benefit from this simple, straightforward and fast-paying risk transfer solution. Reach out to learn how we can help you make better decisions to manage your catastrophe exposures and near-term volatility.

Pay Transparency and Equity

Our Pay Transparency and Equity collection gives you access to the latest insights from Aon's human capital team on topics ranging from pay equity to diversity, equity and inclusion. Contact us to learn how we can help your organization address these issues.

Property Risk Management

Forecasters are predicting an extremely active 2024 Atlantic hurricane season. Take measures to build resilience to mitigate risk for hurricane-prone properties.

Technology

Our Technology Collection provides access to the latest insights from Aon's thought leaders on navigating the evolving risks and opportunities of technology. Reach out to the team to learn how we can help you use technology to make better decisions for the future.

Trade

Our Trade Collection gives you access to the latest insights from Aon's thought leaders on navigating the evolving risks and opportunities for international business. Reach out to our team to understand how to make better decisions around macro trends and why they matter to businesses.

Transaction Solutions Global Claims Study

Better Decisions Across Interconnected Risk and People Issues.

Weather

With a changing climate, organizations in all sectors will need to protect their people and physical assets, reduce their carbon footprint, and invest in new solutions to thrive. Our Weather Collection provides you with critical insights to be prepared.

Workforce Resilience

Our Workforce Resilience collection gives you access to the latest insights from Aon's Human Capital team. You can reach out to the team at any time for questions about how we can assess gaps and help build a more resilience workforce.

More Like This

View All
View All
Subscribe CTA Banner