Transitioning from SAA to TPA: Governance and Communication Requirements

The total portfolio approach (TPA) offers significant benefits over traditional strategic asset allocation (SAA), and its appeal has grown alongside institutional asset owners’ increasing use of alternatives. Transitioning from SAA to TPA requires new thinking, new capabilities, and different delegation of authorities from board to management. This article lays out a phased transition from SAA to TPA, letting an organization choose its pace and how far it wishes to go. It also addresses the communications a board needs, and questions it might ask, to oversee management across five areas: (i) people and culture, (ii) risk management, (iii) asset allocation, (iv) delegation of authorities, and (v) measures of success. Progress through these steps can be sequential, with an initial focus on foundational capabilities that also benefit an existing SAA approach, ahead of necessary changes to governance or incentives. TPA implementation can thus evolve at a pace suited to each fund’s circumstances, letting the board build familiarity with the approach over time.