Episode 9: Total Portfolio Approach: An Unexpected Journey with Ben Samild and Jayne Bok
Mar 19, 2024
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Ben Samild, Chief Investment Officer at Future Fund, and Jayne Bok, Head of Investments, Asia at Willis Towers Watson, dive into the innovative Total Portfolio Approach (TPA). They discuss the shift from traditional asset allocation to a more dynamic and integrated strategy, showcasing collaboration among global asset owners. Their conversations cover the risks and benefits of TPA, digital asset strategies, and the need for a cultural shift in investment management. They even share amusing personal tales about how social media shaped their relationships!
The Total Portfolio Approach (TPA) innovates investment strategy by addressing the limitations of traditional asset allocation methods.
Successful TPA implementation requires a cultural shift towards collaboration, where teams work together across asset classes without silos.
Transitioning to TPA involves overcoming resistance from established governance structures, necessitating patience and comprehensive change management strategies.
Performance metrics in TPA must shift focus from benchmarks to a fund's overall objectives and risk appetite for more meaningful assessments.
Deep dives
Introduction of Total Portfolio Approach (TPA)
The episode introduces the concept of Total Portfolio Approach (TPA) and its significance in capital allocation. It emphasizes TPA as a progressive evolution in investment strategy, moving beyond traditional asset allocation methods. Leaders in the asset management industry are brought together to share insights into how TPA can address existing shortcomings in investment frameworks, particularly in adapting to contemporary macroeconomic challenges. This collaborative effort demonstrates a commitment to shaping a new standard in capital management, reflecting the need for innovation in investment practices.
Case Studies from Influential Asset Owners
The podcast highlights the contributions of major asset owners like Future Fund, New Zealand Super, and CPP Investments in developing TPA. Each organization provides insights based on their experiences and adaptations of TPA principles. For example, Future Fund emphasizes a joined-up approach to finance, where investment teams collaborate across asset classes without traditional silos. New Zealand Super showcases the development of a reference portfolio model, illustrating how different strategies can coexist and compete for attention within a unified investment framework.
Cultural Shifts Required for Effective TPA Implementation
Implementing TPA necessitates significant cultural changes within organizations, focusing on collaboration and collective responsibility. The discussion revolves around creating a culture that promotes open dialogue between teams, integrating different expertise to enhance decision-making processes. Trust becomes a critical factor, as employees must believe in each other’s commitment to the broader goal of the fund rather than individual asset class successes. Leadership plays a pivotal role in fostering an environment where diverse opinions are valued, and everyone is encouraged to contribute to the overarching investment strategy.
Challenges of Transitioning to a TPA Framework
Transitioning to a TPA framework poses challenges, particularly in established organizations that are used to traditional asset allocation practices. The podcast discusses resistance stemming from existing governance structures and the discomfort associated with changing long-standing methods. It emphasizes the importance of patience and perseverance during this transition, recognizing that altering organizational mindsets takes time. Organizations must undertake a comprehensive change management strategy to ensure successful adaptation to a holistic investment approach.
Educational and Consultant Implications
The need for education around TPA is highlighted, suggesting that investment professionals must be equipped to understand how to implement these complex strategies effectively. Consultants and GPs are encouraged to adapt their approaches to align with TPA principles, moving beyond traditional bucket-style strategies. The podcast calls for a re-evaluation of how asset allocation strategies are taught and understood within investment firms. Educators and industry leaders are urged to facilitate dialogues on TPA to promote awareness and practical understanding within the finance community.
Evaluating Performance in TPA Frameworks
Evaluating performance within TPA frameworks challenges conventional metrics typically used in traditional asset allocation models. The discussion emphasizes that success should not be solely measured against benchmarks, but rather in the context of the fund’s overall objectives and risk appetite. An absolute return metric that considers a fund’s specific goals becomes crucial for assessing outcomes. This reevaluation encourages a shift in focus from short-term performance against peers to long-term strategic goals that benefit stakeholders.
Importance of Communication and Cross-Pollination
Effective communication and cross-disciplinary collaboration are critical components for the success of TPA. Leaders assert that investment professionals must engage in dialogues that transcend asset class boundaries to identify the best ideas for the overall portfolio. This collaborative mindset fosters innovation and helps uncover hidden opportunities that may not fit neatly within traditional categories. The emphasis on regular engagement and feedback loops is underscored as a key element in driving collective understanding and strategic alignment among investment teams.
Since the arrival of Modern Portfolio Theory (MPT) in the early 1950’s by the legendary Harry Markowitz, the industry has been sturdily anchored to this philosophy and all of it’s artifacts when constructing portfolios. In recent years, however, an enterprising handful of large institutional asset owners have begun challenging the common wisdom of a strategic asset allocation approach given it tends to breed silo behavior, unhealthy competition for resources and attention, unrecognized duplication or disjointed risk exposure across the portfolio, and difficulty in managing the capital pool holistically around a view of the future. This is the story of how CAIA convened some of the most reputable and largest asset owners in the world to amplify the benefits of TPA and perhaps, the beginning of a new era.
Introduction (0:48)
Halftime (51:40)
Guests (57:21)
Guests:
Ben Samild, Chief Investment Officer, Future Fund
Jayne Bok, CFA, CAIA, Head of Investments, Asia, Willis Towers Watson
