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At Parametric, we’ve observed more asset owners adopt a Total Portfolio Approach, enabling them to manage risk and return holistically. Increasingly, they seek partners with deep cross-asset expertise and customized solutions to play a critical role in implementation.
As the investment landscape evolves, a Total Portfolio Approach (TPA) is gaining traction among asset owners seeking a more unified, holistic view of risk and return. While traditional asset allocation is still a trusted framework for many investors, TPA provides a dynamic, integrated way to manage portfolios—offering cross-asset insight and agility, and efficient use of the balance sheet.
Moving beyond silos
Historically, portfolios have been managed in silos of equities, fixed income, alternatives and other asset classes—each with distinct objectives, benchmarks and risk budgets. This structure has merit and remains widely used. But as portfolios have grown more complex, siloed management may create inefficiencies and unintended risks, while providing an incomplete view of total portfolio behavior in different environments.
TPA addresses these challenges by treating the portfolio as an integrated whole. Instead of optimizing each sleeve in isolation, TPA aligns risk and return at the aggregate level. It shifts investor focus to the central question: What is truly driving portfolio risk and return, and does that align with our mission and risk appetite? This shift enables more coordinated, informed decision-making.
That framing is powerful, but it leaves a critical implementation gap: Once a total portfolio view is established, how can investors adjust risk across the portfolio’s sleeves efficiently and cost effectively to align with their strategic objectives?
TPA sets the blueprint, overlays provide the engine
An overlay partner with a dynamic toolkit may help close the implementation gap and bring TPA to life. They provide investors with a way to express total portfolio decisions without disrupting existing managers or mandates. In practice, this involves leveraging derivatives, overlay strategies and bespoke exposures to manage risk and implement a dynamic asset allocation across the entire portfolio.
Common overlay use cases within a TPA framework include:
- Portfolio completion (aligning beta, duration, FX and inflation exposures around risk budgets)
- Tactical tilt implementation
- Portable alpha and leverage
- Downside hedging and drawdown control
- Transition management
- Cash equitization
These overlay strategies are typically delivered through three core components:
Cross-asset risk insight. TPA requires integrated risk modeling and scenario analysis across asset classes. Parametric’s custom framework may help investors evaluate risks holistically and stress test portfolios at the total fund level. This approach shows how changes in the risk budget or market conditions can affect the entire balance sheet.
Derivatives and overlay management. Tools like futures, swaps, options and QIS strategies allow asset owners to adjust exposures quickly, hedge risks and implement tactical shifts without disrupting underlying holdings. Overlay strategies can neutralize unintended exposures (such as currency or duration mismatches) and help maintain alignment with policy targets. This makes the overlay a central control panel for risk, liquidity and leverage across the whole portfolio, rather than just another strategy.
Custom solutions: Completion portfolios and modular building blocks are used to “fill in the gaps” in the total portfolio, helping to neutralize unintended concentrations, provide targeted exposures that may be hard to access directly and support liquidity and transition events through changing market conditions.
Under a TPA framework, these custom pieces are designed to support the total-fund objective, not just a single asset class mandate.
Strategic partnership: More than trade execution
A skilled implementation solution partner does more than execute trades. The right partner acts as a strategic advisor, helping CIOs and their investment teams interpret risk and factor exposures across the total portfolio. They help identify opportunities to improve capital efficiency and ensure that overall portfolio risk aligns with governance and investment policies.
In this context, overlays and derivatives aren’t speculative vehicles; they are risk tools used to fine tune the portfolio, support board level objectives and turn investment ideas into actionable positions in a disciplined way.
The bottom line
As more asset owners adopt a Total Portfolio Approach, they are seeking partners with cross-asset expertise, flexibility and customized overlay solutions—not just off-the-shelf products. Firms like Parametric with deep multi-asset expertise, robust infrastructure and dedicated overlay solutions should be well positioned to help clients implement TPA efficiently and at scale.
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