How popular is the total portfolio approach?
Over the past few weeks AOX reporters have been surveying asset owners to answer a question which has been surprisingly hard to get to the bottom of: how popular is the total portfolio approach
Good morning. A few months ago I was curious to know how prevalent the total portfolio approach was but I found very few people who felt able to tell me.
It was, I’m told, a very complicated question to answer. Not being satisfied with this, I decided AOX should survey the asset owners we speak to so we could find out.
I should say upfront that while I am writing this up, it has relied on the work of the entire AOX editorial team across three continents, to whom I am very grateful.
So what is the answer to my original question? The results were pretty evenly split: 52 per cent of the asset owners we spoke to said they did use the total portfolio approach. The rest said they did not (of course).
In the “yeses” I have included those who do not currently use it but have concrete plans to implement it imminently (for example one who is planning on implementing it this year), but I have not included those who are currently considering it. I have also included in the “yeses” those who apply the principles of TPA but dislike using the label (sorry if you fall into that category!).
Most of those who said they didn’t use it said they could see the benefits but didn’t think it was suitable for them (with the exception of one asset owner, who told us TPA was “bullshit”).
What else can we say about the asset owners that do use it?
The average AUM of asset owners that responded “yes” was $109.4bn while the average AUM of asset owners that said “no” was $71bn.
This obviously suggests TPA is the preserve of larger asset owners. In fact of the five biggest asset owners we surveyed, four already use TPA and one was planning on doing so in the near future.
So I guess the question we’re all here to answer is: do the asset owners that use TPA perform better? Taking performance data from the past 12 months (and here I’ve used the most recent 12 month period available), asset owners that used TPA returned, on average 9.04 per cent, while those that didn’t returned 6.17 per cent.
