TPA is Changing the Rules: Has your Story Kept Up?

What is TPA?

The term “TPA” (Total Portfolio Approach) is getting a lot of airtime lately, and for good reason. TPA isn’t a grand philosophical shift; it’s a pragmatic response to portfolios that no longer behave the way their Strategic Asset Allocation (SAA) models assumed. An allocator’s SAA can be thought of as a ‘home base’ for portfolio exposure that specifies exposure to different asset categories and combines them to generate acceptable risk/return outcomes over time. Typically, an SAA is broken down into categories (ie, Core, High Yield, Private Credit, EMD, etc.), and managers are selected to fill each category. Alpha within an SAA might be generated by managers, through manager selection, and through tactical deviations from the SAA. Neat and tidy and rooted in Modern Portfolio Theory, where reliance on a set of long-term capital market-based assumptions and the concept of mean reversion have guided many over the decades.

Yet “neat and tidy” and “long-term capital market-based assumptions” are expressions that hardly apply in the complex world of investment alternatives that allocators incorporate in their portfolios today. Nor do they apply to tail events that wreak havoc via drawdowns, liquidity crises, and the like.

By adopting a TPA mindset, allocators consider strategies within the context of the entire portfolio, not as isolated entities or within the silo of their style/asset class categorization. The focus shifts to how every investment contributes to the overall portfolio’s ability to grow, protect capital, manage liquidity, and remain resilient, regardless of the asset class.

What does this mean for Fixed Income and Private Credit managers?

The way allocators evaluate and hire managers is shifting away from categories (fixed income, private credit, high yield, etc.) and toward the function or utility the strategy can play in the portfolio. The “best” manager is less about “who is #1 in the peer group” and more about “who is going to solve some portfolio problem”, including:

• Income that doesn’t impair liquidity during rebalancing windows.

• Credit exposure that doesn’t correlate with equity drawdowns amid refinancing stress.

• Yield that doesn’t require duration extension.

This means, for example, that direct lending strategies aren't compared to each other; instead, they're evaluated alongside public high yield, bank loans, structured credit, specialty finance, convertibles, and flexible credit, among other options. This allows assessment of the functional costs and benefits each strategy brings: the liquidity trade-off of a direct lending strategy can be evaluated on the basis of the income and return attributes of a broader array of portfolio exposures.

What should managers do differently?

Under a TPA mindset, allocators don’t want to hear why your strategy is good – they want to hear why it belongs in the portfolio instead of something else. What we hear from allocators and consultants is that they want managers to:

1. Be clear about the utility your strategy brings to the portfolio:

   • Stop saying what you are:

     • “We are a global unconstrained bond fund.”

     • “We are a senior direct lending strategy targeting X% IRR.”

   • Start saying what portfolio problem you solve:

     • “We provide stable income with low drawdown risk when equity beta dominates portfolios.”

     • “We convert illiquidity into predictable cash flows that fund other portfolio risks.”

2. Do your prospective allocators’ work for them and benchmark relative to opportunity cost:

   • Stop showing:

     • Quartile rankings vs peers.

     • Category-relative excess returns in isolation.

   • Start showing:

     • Comparison vs applicable substitutes.

     • Explicit trade-offs vs cash, core bond, HY, private credit, etc.

3. Be transparent on your strengths and weaknesses to help allocators structure risk deliberately, not discover it after the fact:

   • Stop minimizing:

     • Liquidity risk.

     • Correlation in stress environments.

     • Sensitivity to refinancing cycles.

     • Reliance on macro regime continuity.

   • Start stating up-front:

     • What risks you accept by design.

     • What risks you deliberately avoid.

     • Where you underperform and why.

4. Play nice in the sandbox: Allocators want to include strategies that will make the total portfolio work better:

   • Stop leading with:

     • Absolute returns.

     • IRRs

     • Yield headlines.

   • Start framing:

     • Contribution to portfolio Sharpe ratio.

     • Impact on drawdowns and volatility.

     • Interactions with equities, rates, and credit elsewhere.

     • Ability to fund rebalancing or risk-taking in other sleeves.

Some managers may have the analytic capabilities to model proxies for allocators' portfolios and thereby utilize scenario analyses to demonstrate a strategy’s impact on portfolio outcomes. For those who don’t, developing a working knowledge of alternatives to their strategy can help to define the portfolio role. If a strategy is positioned as a source of income, outline alternative sources of income and the relevant trade-offs of each, along with your strategy: level and stability of income, drawdown profiles, liquidity considerations, and return volatility.

In today’s highly competitive environment, managers who grow don’t push product; they solve allocators’ problems. Think like an allocator and convey to them – transparently – how your strategy will help them to win their respect (and business!).

About Fixed Focus Advisors

Fixed Focus Advisors helps fixed income and credit specialist managers break through barriers to growth. Tom Coleman, founder, brings over 30 years of experience driving product, content, and messaging strategies that connected with allocators and consultants, empowering sales teams to build some of the most successful fixed income and credit businesses in the world.

Reach out and learn how we can help you turn your investment expertise into a growing and thriving business.

Recently, many managers have asked, “What is TPA and why should we, as fixed income/credit specialists, care?” TPA, or Total Portfolio Approach, is a portfolio construction mindset rapidly gaining traction with allocators, changing how they evaluate manager strategies. For fixed income and credit specialists, this means your strategy’s value will hinge less on its peer rankings and more on its impact on the entire portfolio ecosystem. In this article, we explore how to adapt allocator conversations to ensure continued business growth.