Marsh: Breaking down portfolio silos

October 1, 2026

Why are more institutional investors adopting a Total Portfolio Approach?

‘Traditional portfolio construction approaches follow a siloed mode, allocating defined quantities of capital to set asset classes. Institutional portfolios today span public equities, fixed income, private equity, infrastructure, private credit, overlays, and liquidity reserves. Managing those exposures in separate buckets can obscure how the portfolio really behaves.

As data availability, analytical technology and the requirement for agile decision making have evolved, a new holistic framework for understanding and decision making has emerged. A Total Portfolio Approach, or TPA, starts with the fund’s overall objective and risk budget, then asks how each allocation and decision impacts the overall portfolio. This is especially valuable in today’s world of unstable correlations, higher rates, and a much larger opportunity set across private markets.’

How does it change the way investors determine allocations to private markets?

‘It shifts the conversation from ‘How much should we allocate to this asset class?’ to ‘What role should this exposure play in the context of the total portfolio?’ Under a traditional framework, private markets are often sized by policy targets, pacing plans, and peer benchmarks. Under TPA, they are sized by their expected contribution to total return, diversification, inflation sensitivity, and liquidity consumption. In other words, private assets stop being a standalone bucket and become part of a broader portfolio construction problem.’

Which investment decisions look fundamentally different when viewed through a Total Portfolio Approach rather than an assetclass lens?

‘The biggest difference is that capital is no longer rationed by silo. Under TPA, a private credit opportunity may compete directly with public high yield, or infrastructure equity with listed utilities, based on which best improves the total portfolio. Benchmarking also changes: success is measured against the fund’s total objective, not whether each sleeve beats its own index. Liquidity management becomes a whole-portfolio discipline rather than a constraint applied to only one bucket. Rebalancing changes too, becoming more opportunity-cost aware and less mechanical.’

What are the biggest challenges institutions face when implementing a Total Portfolio Approach in practice?

‘The toughest challenge is governance. TPA requires boards to define their objectives, risk appetite, and liquidity tolerance clearly enough for the CIO office to make integrated decisions across markets. That often means giving up some comfort with traditional policy ranges and asset-class ownership, but the payoff is around nimble decision making and accessing new, innovative alpha sources as they emerge.

The second challenge is organisational: many institutions are still built around public versus private, or equity versus fixed income, with separate teams, incentives, and reporting lines. Alignment to a common goal and multi-faceted perspectives around decisions, we believe, leads to better outcomes. The third is infrastructure. TPA depends on better total-fund data, risk systems, and liquidity forecasting than many investors currently have. Technological advancement and its democratisation have lowered these hurdles, making TPA a much more realistic proposition for large asset owners.’

How does a Total Portfolio Approach change the way investors determine their allocation to private equity, infrastructure and private credit?

‘It changes the question from category size to portfolio function.

For private equity, the issue is not simply whether it deserves a higher target weight. It is whether its long-term return potential justifies its leverage, cyclicality, manager dispersion, and illiquidity in the context of the total portfolio.

For infrastructure, investors focus less on whether it sits in real assets and more on what it contributes: inflation linkage, contractual cash flows, duration, and resilience. Some infrastructure will behave defensively, some will look more like growth equity.

For private credit, the attraction is often income, floating-rate exposure, and structural downside protection. But under TPA, that must be weighed against illiquidity, concentration, and what similar risk can be achieved in public credit markets.

So TPA does not automatically imply larger private markets allocations. It implies more disciplined, targeted ones.’

How do you deal with the different valuation methodologies and reporting frequencies of public and private assets when managing the portfolio as a whole?

‘The key is not to confuse accounting smoothness with economic stability. Public assets are priced continuously, private assets are appraised periodically and often with a lag. That means reported volatility in private markets can understate true economic risk. Institutions using TPA address this by combining reported NAVs with look-through analysis of underlying exposures such as sector, leverage, duration, and sensitivity to growth or rates. They also rely heavily on liquidity forecasting, scenario analysis, and stress testing. In practice, the portfolio is managed using both reported values and estimated economic exposures, rather than assuming all marks are equally timely or equally informative.’

Is a TPA primarily suited to large, well-resourced institutional investors, or can smaller organisations with more limited resources implement it effectively as well?

‘TPA is often associated with large, sophisticated institutional investors, because they typically have the governance structures, data, and in-house investment expertise needed to evaluate trade-offs across the whole portfolio. In that sense, scale does help. Larger investors are generally better positioned to model interactions between asset classes, assess total risk exposures, and make dynamic allocation decisions in a highly integrated way.

That said, the underlying principle is not exclusive to large institutions. At its core, TPA is about making decisions at the portfolio level rather than in isolated silos. Smaller organisations can absolutely apply that mindset, even if they do so in a more pragmatic and simplified form. They may not build highly complex internal models or deploy large specialist teams, but they can still align governance, focus on total fund objectives, and use external advisers or OCIO providers to support implementation.

The key question is less about size and more about decision-making discipline. Institutions with limited resources can still benefit if they are willing to streamline governance, clarify priorities, and avoid overly rigid asset-class buckets. So, while larger investors may implement TPA more fully, smaller investors can still adopt its core ideas effectively, and often gain meaningful benefits from doing so.’
  

SUMMARY TPA replaces asset-class silos with decisions based on overall portfolio objectives and risks. Private markets are assessed by their portfolio function rather than fixed allocation targets. Governance, organisational structures and data infrastructure remain key implementation challenges. Different valuation methods require look-through analysis, scenario testing and liquidity forecasting. Smaller institutions can also adopt TPA principles, often with external support.

   

Read the full article in Financial Investigator magazine