Institutional Investors Shift to Total Portfolio Approach Amid Private Market Growth
Global institutional investors are shifting from traditional asset allocation to the Total Portfolio Approach (TPA), prioritizing holistic risk-adjusted returns and rigorous manager selection in private markets.
For nearly four decades, a cornerstone of institutional investing has been portfolio allocation divided into distinct asset classes such as equities, bonds, real estate, and private equity. Each group was assigned a target weight and a benchmark, with teams measured strictly within their designated box. Known as Strategic Asset Allocation (SAA), this model provided investors with a clear framework and investment discipline. Today, some of the world's leading institutional investors are beginning to question whether this framework still fits the modern investment landscape.
The Shift to Total Portfolio Allocation
This summer, CalPERS, one of the world's largest pension funds, transitioned to the Total Portfolio Approach (TPA). Instead of starting with how much to allocate to each asset class, every investment is evaluated based on its overall contribution to the entire portfolio: its risk-adjusted return, liquidity, and existing exposures. Capital is not pre-allocated to a specific bucket, but rather directed to the opportunity that best enhances the portfolio as a whole.
CalPERS is not alone. Other major institutions adopting this approach include Canada's CPP Investments, the Australian Future Fund, Singapore's GIC, and the New Zealand Super Fund. In July 2026, the CFA Institute dedicated a comprehensive report to this shift from siloed asset classes to enterprise-wide capital allocation. Research by the Thinking Ahead Institute found that institutions adopting the TPA approach generated an average annual return 1.3% higher over the analyzed decade compared to peers operating under the SAA model. Against a target return of roughly 7% annually, this represents a significant gap, particularly in long-term wealth management.
Navigating Private Markets and Manager Selection
This evolution occurs alongside the growing weight of private investments in institutional portfolios. As private markets become a core component, another critical point sharpens: choosing the right strategy is only part of the equation. Manager selection can dramatically influence the final outcome. Data from Preqin on buyout funds, which acquire controlling stakes in companies, illustrates this clearly. In 2022 vintage funds, which remain in an early stage and whose results may evolve, returns currently range from minus 18% at the lower end to approximately 34% at the upper end—a spread exceeding 50 percentage points.
These vast gaps demonstrate why relying solely on asset allocation is insufficient in private markets. Unlike public markets, where broad exposure can be acquired through index-tracking products, achieving market returns in private assets is far more constrained. As performance disparities widen, selecting the right manager and fund becomes a paramount investment decision. The goal is not to spread capital among as many managers as possible, but to identify leading managers through rigorous research, comparison, and deep due diligence.
Implementation and Future Outlook
Israeli institutional investors have also significantly expanded their activity in private markets. The key question is whether their decision-making processes have evolved at the same pace: how to compare private and public investments based on their contribution to the total portfolio, how to price liquidity, and how to integrate asset allocation with manager selection. These questions will take center stage at the upcoming annual conference of Leader Private Equity, scheduled for November 10.
The discussion extends far beyond any single investment strategy, touching upon how institutional portfolios should be constructed and managed over the coming decade. The Total Portfolio Approach does not eliminate the importance of asset allocation, but it fundamentally alters the starting point. In the realm of private investments, the implication is clear: allocation determines where to deploy capital, but the selection of the manager, fund, and specific asset will largely dictate the actual outcome.
