Under TPA, an investor's job is no longer to fill asset class buckets. Instead, it's to generate knowledge on how any potential investment—be it a manager, ETF, or direct deal—adds value to the overall portfolio's objectives, forcing an apples-to-apples comparison of all opportunities.

A key enabler for CalPERS' shift to a Total Portfolio Approach (TPA) was a pre-existing change in compensation. By rewarding all investment staff based on the entire fund's performance, not their specific asset class, the organization had already fostered the necessary collaborative mindset for TPA to work effectively.

The new approach to asset allocation treats private markets as an alternative to public stocks and bonds, not just a small add-on. This means integrating them directly into the core equity and debt portions of a portfolio to enhance returns and diversification.

Apollo's foundational private equity strategy—seeking value, being contrarian, and investing flexibly across the capital structure—was not siloed. This single philosophy of maximizing return per unit of risk now guides every investment decision across their entire platform, including credit and insurance.

In a TPA model, diversification is a total-portfolio responsibility. This frees individual teams from needing to diversify within their silo. They can build more concentrated, high-conviction portfolios, as their contribution is assessed at the whole-fund level, where diversification is achieved across different strategies.

Unlike traditional asset allocation where portfolio decisions are jointly owned, TPA clarifies governance. The board sets a risk appetite via a reference portfolio, but management is solely accountable for constructing and managing the actual investment portfolio, making their performance directly and transparently measurable.

Moving from Strategic Asset Allocation (SAA) isn't about taking on more risk. CalPERS calculated that their existing SAA policy ranges already allowed for a ~450bps active risk budget. TPA maintained this budget but granted flexibility to deploy it across the entire portfolio, unconstrained by rigid asset class silos.

Contrary to common belief, the Total Portfolio Approach (TPA) isn't about nimble trading. It's a framework that uses data to understand the risk of any investment relative to a simple reference portfolio (e.g., 70/30). This allows allocators to fund compelling opportunities flexibly, freed from rigid, pre-defined asset class silos.

A pure TPA system can alienate specialists hired for specific asset classes. A hybrid model, where a portion of capital is allocated to traditional buckets, allows organizations to retain deep expertise in areas like private equity while still gaining the benefits of a holistic TPA overlay on the rest.