Beyond mean variance portfolio management and Strategic Asset Allocation (SAA), there is a new idea taking hold with many of the largest portfolio managers, Total Portfolio Approach (TPA). Some of the largest endowments in the world know embrace this concept for managing their portfolio although there does not seem to be a very simple definition. If you ask any three people, their definition you will likely get three similar yet distinct answers.
The two charts below from a CAIA report provide some insight on TPA basics. The foundation of this approach is based on setting clear fund goals for return and risk and then look at the contribution of different asset based on their characteristics like factor risk premium, liquidity and volatility. There is less emphasis on benchmarks or on allocations across asset classes and more focus on contribution to a performance goal. The fund goal can be minimum cash flow requirement or an expected growth in wealth. In this sense, TPA is a broader concept with SAA being a subset within the TPA, yet there needs to be more specifics for this approach to be embraced by a wider audience. We wrote about this almost five years ago and while more endowments are using this approach it still has not reached general acceptance.
see:
No comments:
Post a Comment