Consistent with this reality, we have had ongoing discussions with a growing number of clients, both large and small, about how to improve the likelihood of achieving their portfolio objectives. Increasingly of late we have seen that the ‘total portfolio approach’ (TPA) has been intertwined in these client conversations.
That interest is not surprising, given recent volatility as well as the compression of forward-looking returns. However, before an investor can implement a total portfolio approach, we think it is essential to be explicit about the building blocks that drive better outcomes. So, in our most recent work on Capital Market Assumptions, we laid out our views on key portfolio construction assumptions — expected returns, volatility, correlations, and manager dispersion — to highlight the importance of looking beyond just broad asset class exposures for value in a world of higher multiples, tighter spreads, and less reliable diversification from bonds. Those assumptions provide a natural bridge we believe to implementing a total portfolio approach, allowing CIOs and others to translate inputs and opportunities into whole portfolio decisions.
At its core, the total portfolio approach is a whole-portfolio decision and governance framework that evaluates investment opportunities across Public and Private Markets based on their contributions to total portfolio objectives, rather than within static asset-class sleeves. Not surprisingly, as broad market exposure has become less reliable and long-term success increasingly depends on relative value, underwriting, and implementation discipline, CIOs have been looking for more ways to ‘win’. KKR has long invested in an integrated platform that generates investment insights by leveraging our advantages across capital structures and geographies, alongside expanding proprietary origination that helps us ‘make our own luck’ in sourcing. We believe these capabilities can help investors operationalize a total portfolio approach, as perspectives from the balance sheets at both KKR and Global Atlantic deepen our understanding of how capital flows, liquidity conditions, and risk appetite evolve through market cycles.
TPA is most often contrasted with Strategic Asset Allocation (SAA), which for decades has served as the dominant organizing structure for institutional portfolios. In its strongest form, SAA provides discipline, asset-class diversification, and governance clarity. However, as portfolios have grown more complex, particularly with the expansion in Private Markets, rigid asset-class boundaries and infrequent policy resets have sometimes slowed decision-making, obscured underlying economic risks, and constrained the ability to re-underwrite swiftly where capital is best deployed.
Importantly, in our view, adopting a TPA framework does not require abandoning SAA wholesale. Indeed, in practice, many investors we have spoken with who have adopted the framework describe it as more moving along a continuum, retaining a strategic anchor for accountability while incorporating elements of total portfolio thinking. For investors with meaningful Private Markets exposure, that shift is often most visible in implementation, including improved liquidity management, steadier commitment pacing, better vintage diversification, and greater flexibility through drawdowns and denominator effects. Ultimately, the appropriate degree of adoption depends on investor objectives, constraints, resources, and organizational design. One practical on-ramp we think that warrants all investor attention is a ‘minimum viable TPA’. More details below, but this approach can include centralizing portfolio-level functions, strengthening in-house portfolio construction and relative-value capabilities, refreshing views more frequently, and piloting TPA through a dedicated sleeve that has clear risk and liquidity guardrails.
In the sections that follow we offer:
- An overview of TPA’s core mechanics and the ways it differs from the traditional SAA framework.
- A discussion of why TPA may be most relevant for Private Markets investors, particularly through liquidity management, pacing discipline, and cross-strategy relative value decision-making.
- An applied example of constructing a Private Markets program in a total portfolio context, including forming strategy views, mapping risk and return drivers, optimizing an allocation, and planning commitments and liquidity.
- Practical guidance on incorporating select TPA elements within an existing SAA framework.
First, we believe TPA is a logical evolution of Strategic Asset Allocation, as it shifts the focus from “how did each asset class do versus its benchmark?” to whether the overall portfolio is delivering on objectives. We support this shift in mindset in response to the increasing complexity across global capital markets, and we view it as a useful catalyst for a more relative-value focus in Private Markets. That said, we do not think TPA is the only way to manage a portfolio or that it is a silver bullet solution to improve performance, as it is not a substitute for skill. The results investors experience will ultimately hinge, we believe, on the quality of forecasting, risk modeling, manager selection, and implementation discipline. In our view, the right approach for many institutions is grounded in practicality, and likely will incorporate elements of TPA, while recognizing the realities of organizational structures and the capacity for timely execution.
