Understanding CPP Investments' Total Portfolio Investment Framework

Earlier today, I watched a panel discussion on Total Portfolio Approach (TPA) posted on LinkedIn featuring Derek Walker, Managing Director, Head of Portfolio Design & Construction, Total Fund Management and Global Leadership Team at CPP Investments.

I embedded the discussion below and it's well worth watching it all.

Derek and Geoffrey Rubin, Senior Managing Director & Chief Investment Strategist, Total Portfolio Management, shared insights into CPP Investments' Total Portfolio Investment Framework in “Innovation Unleashed: The Rise of the Total Portfolio Approach”, published by the CAIA Association. 

You can download this important and detailed paper here and it's definitely well worth reading.

In this post, I will focus on Derek and Geoffrey's contribution but have a look here as there are other valuable contributions:

So what is Total Portfolio Approach (TPA) and why should we care?

In short, and these are my expert (or non-expert) opinions, TPA is the very essence of proper pension fund management and IF done correctly, it goes beyond the traditional Strategic Asset Allocation (SAA) approach to really capture the best risk-reward opportunities across and within public and private asset classes spanning many sectors, strategies and geographies.

In other words, IF implemented correctly and if incentives are properly aligned and distributed, TPA should offer meaningful value add over a static SAA approach:

Of course, the devil is in the details because a lot of smart people are going to peddle their Total Portfolio Approach as being "extremely sophisticated" but when you drill down, their Strategic Asset Allocation  explains 99% of their returns over the long run.

"Leo, that's pension blasphemy, are you saying TPA doesn't work and is nothing but sophisticated mumbo jumbo that adds little to no value?"

No, that's not what I'm saying. I'm saying that properly implementing TPA at a large pension fund is very difficult and requires the right governance, culture, incentives, and to be truthful, it's a lot of work and you need to understand what is going on at the ground level to properly compensate this activity and gauge whether it's offering meaningful value add over the long run.

I've worked at pension funds, let me tell you how it typically works. Every team works in silos, they're concerned about beating their internal benchmark to make their big bonus at the end of year and if the pension fund as a whole also beats its benchmark, great, more bonus comes their way.

I'm being facetious but it's not far from the truth and it's extremely difficult to have investment professionals working in different groups collaborating to make sure risk is allocated appropriately and with the total fund returns in mind.

I know, everyone will claim they have a one fund approach and they work collaboratively across teams and asset classes but color me skeptical, I still think silos exist and most people only think about their asset class and beating their internal benchmarks (to be fair, career risk dominates their mindset which is why they make sure their primary focus is on adding value in their area of expertise, total fund return is an after-thought).

Like I said, implementing a successful Total Portfolio Approach (TPA) is far from easy, it requires great leadership at the top (CEO, CIO, CIS, etc) and buy-in from all the other leaders and their team members.

Also, and I don't want to beat this point to death, it takes a special person to be part of a successful total portfolio team and the attributes are endless. 

Very few people are good at holistic thinking, connecting the dots, it's not easy, much easier to focus on your area of expertise and that's it.

Alright, now that I've shared my completely biased views (I'm too old, too cynical and too sclerotic) let me share Derek and Geoffrey's insights on investing through a factor lens as they're the experts and get paid big bucks for implementing TPA at CPP Investments:


There are a lot of great insights here and they are honest that while they believe CPP Investments’ Total Portfolio Investment Framework (TPIF) and the factors that underpin it will lead to superior investment returns, "the factor-based approach brings additional challenges above and beyond a traditional asset class-based approach."

It's fair to say that this is a more complex approach and requires constant refining and proper assessment but if done properly it can add meaningful added-value over the long run.

What I am unclear about is how do they properly assess their TPIF to gauge the added value over the long run? Calling the traditional benchmarking approach "banal" is fine but then you need to figure out a way to properly measure success and compensate people on this TPIF.

That's a discussion I'd love to have with Derek, Geoffrey and Ed (Cass) one day.

Also, one area where all of Canada's large pension funds need to step up their game and hire the right people is in currency management, it's been a long-term disaster for the most part (contact my friend Steve Boucouvalas in Oakville, Ontario, he has more experience managing currencies properly than anyone at the Maple Eight and he knows how to consistently deliver alpha).

Lastly, I remind my longtime readers that Mihail Garchev, Vice President Total Fund Management at BCI, did a whole series on Total Fund Management on this blog back in 2020 which was very detailed and quite popular. 

I will refer you to his last comment on "Envisioning the Canadian Pension Model 2.0" as it wrapped things up well and I posted links to other posts in his series there leading up to that final comment.

I have to be honest, I do not see much innovation going on at Canadian pension funds nowadays and to me it feels like everyone is trying to do the same thing (not that this is necessarily a bad thing but it's status quo or steady as we go).

I don't know, nowadays I'm too busy focusing on US biotech companies and who is coming up with innovative treatments for all sorts of diseases (I love the sector).

Like I said, in my world, I don't have time to pontificate, it's either I make money or I die. Period.

Below, please take the time to watch a great panel discussion on the Total Portfolio Approach featuring Derek Walker, Managing Director, Head of Portfolio Design & Construction, Total Fund Management and Global Leadership Team at CPP Investments. 

I'm all for it as long as it's done right and the program's success or failure can be measured properly.

Also, an older (2022) interview with Geoffrey Rubin on Capital Allocators on the modern Canadian model at CPPIB. Take the time to listen to this as well, great insights here too.