Breaking down the silos with total portfolio management

Managing portfolios today and into the future requires a different approach if firms want to be more productive, manage risk more effectively and capitalize on emerging technologies. In a webinar convened by WatersTechnology and hosted by SimCorp, experts discussed how total portfolio management (TPM) could be the key to achieving such investment and operational efficiencies.

The buy side is undergoing a seismic shift. Asset managers and asset owners are looking beyond traditional asset allocation models, but they are not simply chasing benchmark returns. Today’s investment landscape—fast-changing technological and innovation pace, new geopolitical and economic risks, and proliferation of alternative asset classes—demands a closer look at leveraging TPM.

“The kind of asset class return drivers we used to have are not fit for purpose going forward,” said Marisa Hall, head of the Thinking Ahead Institute at WTW, adding that it is necessary to think about different ways of making portfolios resilient.

This shifting paradigm requires more than a technological upgrade—it’s a reimagining of investment strategy around decision velocity. As alpha becomes increasingly scarce and competition intensifies, portfolio managers must act faster to capture fleeting opportunities. Meanwhile, the explosion of non-traditional asset classes creates a constant stream of time-sensitive decisions that traditional models are unable to support.

This prompts asset managers and asset owners to demand a more holistic view of their entire portfolio, allowing them to seize new opportunities while also managing emerging risks.

One consolidated view

While the nomenclatures of TPM, total portfolio approach (TPA) and total portfolio view (TPV) are still relatively new—with the industry still deliberating on the relevant definitions—their overarching concept is not. Their basic theme is the ability to see unified analytics and exposures across the entire portfolio.

As Jennifer Correale, partner of the Alpha Alternatives team for North America at Alpha Financial Markets Consulting, puts it, TPM is about moving away from specific asset class investment approaches toward a framework that prioritizes overall portfolio objectives and total risk-adjusted returns.

“It’s about one place to have a real-time view of your entire investment holdings, risk exposures and performances,” she said.

In a peer study of 26 of the world’s largest asset owners conducted last year by the Thinking Ahead Institute, Hall said the study found that those who have adopted a total portfolio approach over a strategic asset allocation approach had a 1.3% per annum premium over a 10-year period.

Cultural change

One of the challenges involved in working toward TPM, TPV and TPA is that it requires a cultural shift within the organization itself. This includes how firms incentivize their teams, as well as rethinking the entire investment management process.

While implementing the TPM is a large undertaking, it is increasingly a necessity, given the growth of multi-asset portfolios. “As our investment ecosystem matured, we noticed there were gaps in how joined-up the system was. TPA was an innovation born in the 2000s where they started off with a blank sheet of paper asking: ‘What is a better way of managing our portfolio?’” Hall said.

Decision velocity is another catalyst pushing asset managers and asset owners toward a unified, harmonized and normalized portfolio view, Shirley Zhang, head of commercial development for North America at SimCorp, added. The market’s ever-quickening pace means that buy-side participants must be able to go from ideation to execution even more quickly, requiring full real-time portfolio data at their fingertips to achieve such velocity.

The data challenge

Firms need to address the data challenge first. In a poll question gauging the audience’s biggest challenge in achieving TPM across public and private assets, the resounding answer was, unsurprisingly, the lack of data integration across disparate systems.

Zhang likens the challenge of breaking down technology silos to building a house. “The foundation must be incredibly strong and sturdy before you can start putting up the walls, windows and roof. The foundation in this instance is data,” she said.

Once a firm has built its data foundation—data management and governance—along with the investment book of record and accounting book of record in a single unified place, it can start adding other layers such as multi-asset risk management and risk factor-based exposure analysis.

Another must-have is a system architecture that allows for flexibility as well as for speed and scalability. Zhang said this would allow firms to conduct frequent and iterative portfolio stress tests and what-if analyses.

“With TPA, investment allocation or portfolio construction and risk management are not two separate steps, rather one informs the other. This heightened risk management culture requires frequent simulations of portfolios under stress conditions across all asset classes,” she said.

For Aimee Scott, investment accounting supervisor at Retirement Systems of Alabama (RSA)—a firm that is well on its journey to TPM—one of the biggest benefits so far is having real-time clean data across its systems.

“We went from having an order management system [OMS] that was separate, and we were having to pass data back and forth—it was very stagnant. Our portfolio managers weren’t seeing data that was live or could even trust that the start-of-day data is completely accurate,” Scott said.

Any errors in the data needed to be manually corrected.

Now, RSA’s current setup is on a single system with SimCorp One, which enables the firm to share data easily. “We’re getting many more live decision-making points for our portfolio managers, and we can see the data as we trade throughout the day. They are seeing the real-time impact on the portfolios,” she said.

This includes data on cash, enabling Scott and her team to manage the firm’s cash more effectively.

Before embarking on the TPM journey, RSA was pulling reports from different systems—from its custodian, accounting system, OMS, and so on—and reconciling on the fly. “Having real-time data between the systems has allowed us to tighten up our cash a lot and therefore, give our portfolio managers a much better idea of what they have available to invest,” she said.

Strategies for implementation

Having begun the journey, Scott advised others embarking on similar journeys to set aside ample time to create a proper plan and then implement it.

“We tried to do it within a really aggressive timeline, which we imposed on ourselves, and that hurt us in the short term, getting on to one system that integrated all of those things. I see a lot of other firms are taking a more step-by-step approach and adding things one at a time. We took the firehose method and took everything at once and, for a while, it was fairly painful,” she said.

Despite that process, Scott said that implementing TPM has helped RSA improve its processes within reconciliations, for example. “Previously, we were behind the ball. We’ve gone to where we’re now doing daily reconciliations and we can see exactly where our portfolios are—not just end of day, but also at start of day and throughout the day,” she said.

The future of TPM

While many asset managers and asset owners are still early in their journeys to TPM, potential capabilities for the future of TPM are already emerging.

WTW’s Hall said the journey is also about recognizing that firms need to think differently about making their portfolios resilient.

“One thing I think is an evolution to a one-fund approach—though we’re absolutely not there yet. I think maybe it’s the near-final step in TPA maturity to bring everything together in a single fund. So, all of your balance sheet opportunities, the way you think about liquidity and investing across the capital stack, it’s everything put together,” she said.

Looking at the evolving investment landscape, it is clear a shift from traditional asset management strategies to a more integrated and holistic approach is necessary, as firms navigate uncertainty, emerging risks and the pace of technological change.

TPM enables firms to improve decision-making through a unified data foundation and flexible technology stack. As firms refine their strategies and adopt new solutions, TPM is set to transform investment approaches, resulting in more agile and informed decision-making in a rapidly changing market.

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