Inside HOOPP’s Total Portfolio Approach
Total portfolio approach, once an academic framework, is becoming the go-to operating system for large asset owners grappling with a more fragmented, inflation- prone world.
MAIN TAKEAWAYS
- TPA has existed for decades, but adoption is accelerating as allocators reassess whether stable correlations, mean reverting growth and long run risk premia still hold
- HOOPP’s portfolio won’t drastically change if the long term outlook hasn’t changed, but when it does, the total portfolio framework ensures they are prepared
- Boards define risk guardrails while investment teams position the portfolio
Total portfolio approach, once an academic framework, is becoming the go-to operating system for large asset owners grappling with a more fragmented, inflation-prone world.
Jacky S. Lee, senior managing director and head of total portfolio management at the USD88 billion Healthcare of Ontario Pension Plan in Toronto, said TPA has existed for decades in research and practice.
Adoption is accelerating now as allocators are increasingly questioning whether the assumptions underpinning strategic asset allocation, stable correlations, mean reverting growth and long run risk premia, still hold after decades of falling rates and globalization. In response, some are reorganizing around TPA, a framework that prioritizes total fund outcomes over static asset class silos.
“TPA does not offer a recipe, but a way of adapting when the assumptions of markets themselves may be changing,” Lee said, highlighting concerns that economic regimes may now persist rather than revert. Inflation dynamics, supply-chain realignment, currency volatility and geopolitics are forcing investors to think in probabilities, not averages.
At HOOPP, the total portfolio approach officially came into effect in January but dates back to the early 2000s with the liability driven investing strategy. Lee said HOOPP’s success during that time, in large part, was a result of successfully positioning the fund to take advantage of market re-pricing of risk premiums. “Just like other funds, HOOPP continues to evolve its governance approach, and we now describe HOOPP’s TPA framework as an investment mindset centered on preparedness, and guided by integration and adaptability. [We have] investment teams working together as one fund and we are prepared to adapt the portfolio when market conditions change.”
At its core, TPA reframes portfolio management as an organizational system rather than a static allocation exercise, shifting focus toward total fund outcomes and aligning governance and incentives around that objective. “Investment is about judging odds and positioning portfolios so the odds play in your favor. TPA is a framework that gives skilled teams a better chance of achieving that outcome,” Lee said.
Boards set total fund risk tolerance and constraints, such as liquidity and concentration, while investment leadership determines positioning within those limits, he said. The focus shifts from asset allocation targets to how the whole portfolio behaves across scenarios.
That shift is also reshaping incentives and benchmarking. Traditional benchmarks have long doubled as both passive exposure proxies and performance yardsticks. Under TPA, Lee said those roles are increasingly split. Asset allocation models help understand portfolio risk, while performance is judged against strategy-specific objectives rather than index relative returns, he said. “We are not trying to answer whether [the managers] beat an index but whether they did a good job based on what [they] were asked to achieve.”
Diversification, too, is treated as dynamic, Lee added. Rather than relying on historical correlations, teams stress test portfolios across regimes, questioning whether assets that once offset equity risk would do so under different monetary or currency backdrops.
To support that approach, TPA teams monitor a broader set of signals beyond traditional capital market assumptions. These include business cycles, credit cycles and liquidity cycles, alongside policy direction, market positioning and sentiment. Teams also incorporate qualitative inputs such as geopolitical developments, expert views and company level operating data. The goal is probability assessment across multiple potential futures rather than precise forecasting, Lee said. “Forming a view is hard...Understanding what is already [priced in] is even harder,” he said.
Lee said implementation varies. Some funds lean into dynamic allocation, others build portfolios designed for robustness, while some retain strategic anchors but act aggressively in dislocations. What unites them is a single objective: improving long term risk adjusted outcomes by aligning governance, incentives and portfolio construction around the total fund, not its parts. “At HOOPP, our philosophy is to maintain what we believe is the most appropriate portfolio based on our current long term outlook,” he said. “The portfolio would not drastically change if that long term outlook hasn’t changed, but when it does, we are prepared,” he said. “We can think of our approach as ‘event driven’, where our portfolio can remain stable for a long time, but we are ready to pivot when our long term outlook materially changes,” he said.
Excellent interview with Jackie Lee, senior managing director and head of total portfolio management at HOOPP.
Jackie is obviously a very sharp guy who understands the total portfolio approach (TPA) inside out.
In this interview, he doesn't just get into HOOPP's TPA thinking he also discusses the different approaches others implement but with the same objective, namely, "improving long term risk adjusted outcomes by aligning governance, incentives and portfolio construction around the total fund, not its parts."
At its heart, TPA is really all about obtaining the Fund's investment objective by finding the best risk-adjusted returns across public and private markets.
It requires breaking down the silos and groups working collaboratively to find the best opportunities to invest over the long run.
When severe dislocations happen, typically the best opportunities lie in public markets, and here I'm specifically thinking of HOOPP when the pandemic first hit and senior managers were jumping in on a morning Teams meeting to discuss where to invest.
But sometimes you get massive dislocations in private markets as well and need to react quickly.
TPA embodies a lot more than what I'm discussing above.
A few years ago, my former PSP colleague, Mihail Garchev who is now Head of Total Fund Management at BCI had written a seven part series on integrated total fund management for my blog which was very popular at the time (see Part 1 here and Part 7 here).
Mihail once told me we should get all the total fund guys and gals in a room and I should interview them for my blog ("so, what exactly do you do and why do you consider it so important?").
I must admit, I take all this total portfolio approach and integrated total fund management stuff with a pinch of salt -- it makes sense, sounds sophisticated but like all the hype in AI, where's the beef?
I'm not saying these people aren't doing important work, they are, but I need to evaluate it relative to the old approach where groups don't talk to each other, couldn't care less about total fund and only focus on beating their benchmark.
On this issue, notice this part from the interview above:
[...]while performance is judged against strategy-specific objectives rather than index relative returns, he said. “We are not trying to answer whether [the managers] beat an index but whether they did a good job based on what [they] were asked to achieve.”
Critics may claim TPA is a way for underperfoming managers to get paid based on soft objectives rather than hard objectives.
But in TPA, teams are aligned and focused on fund objectives and this requires a different way of thinking altogether and objectives cannot be measured solely on beating a benchmark.
It's also worth noting TPA or TFM is better suited for plans that have one client like Teachers' or deal with one sector like HOOPP.
In a recent interview discussing their new strategy, AIMCo's CIO Justin Lord said this about TPA:
“If anything, TPA is at a client level at AIMCO where we are focused on portfolio management for individual clients to reflect their circumstances regarding risk, portfolio construction and strategies like rebalancing and hedging.”
Anyway, there's a lot to digest here, I would love to dive a lot deeper into TPA one day with experts across all of Canada's major funds.
Below, Stephen Gilmore, CIO of CalPERS, joins Capital Allocators with Ted Seides to discuss CalPERS' Total Portfolio Approach.
This is a great in-depth discussion and Stephen Gilmore is experienced and explains difficult concepts very well. Take the time to listen to his insights and how they're implementing TPA.
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