Skip to content
Total Portfolio Approach

Concept 2 of 6

Competition for capital

Every investment must keep earning its place against other uses of the same money and risk, judged by its effect on the whole fund.

Why this matters to you

Choose your view in the header to see why this matters to you and to start at the right level.

In plain words

Under competition for capital there are no reserved seats: no money is set aside for property or bonds, and every euro goes to whichever idea does most for the whole fund. Money can be taken back, and ideas compete, not people.

Sources: Thinking Ahead Institute 2019, pp. 2, 4; CAIA Association 2024, pp. 14, 27; CFA Institute Research & Policy Center 2026, p. 40

Picture it

Picture a fund with money to place and two good ideas from different teams. In a traditional strategic asset allocation each team fills its own bucket. Here both ideas face one test.

Each is treated as if paid for by selling a slice of the fund's cheap reference portfolio with similar risk, and what that slice would have earned is the hurdle. Charges follow for the cash the idea locks up and the staff time it needs, plus a check on how it fits what the fund already owns.

Sources: CFA Institute Research & Policy Center 2026, pp. 6, 40; A. Ang, M. Brandt, D. Denison for the Norwegian Ministry of Finance 2014, pp. 9, 76; GIC 2022, “Policy and active portfolios”; CPP Investments Insights Institute 2026, p. 7; CAIA Association 2024, pp. 27–28; Bridgewater Daily Observations podcast 2024, Ch. 4

Two ideas compete for €200m

Illustrative numbers

Assume the reference portfolio's shares are expected to earn 7% a year and its bonds 3%. Each idea is paid for by selling the slice of the reference portfolio with the same sensitivity to share prices; for simplicity, the rest of that slice is bonds.

Each idea against the slice sold to fund it (pp = percentage points)
MeasureA: logistics property fundB: listed infrastructure fund
Expected return, net of fees8.0%6.5%
Sensitivity to shares (beta)0.50.7
Slice sold to fund it50% shares, 50% bonds: 5.0%70% shares, 30% bonds: 5.8%
Edge over its funding3.0pp0.7pp
Charge for illiquidity and team workload1.0pp0pp
Net edge2.0pp0.7pp

A wins this round. The ranking could still flip if the fund's liquidity budget is already spent, or if A merely duplicates property exposure the fund already holds: fit can matter as much as return.

How funds do it

The board fixes total risk; management runs the contest inside it.

  • NZ Super: a toll road goes ahead only if it ranks among the best investments across all asset classes, even when real assets are below target. Existing holdings face the same test, and each asset is judged on its contribution per unit of liquidity used, and on the staff time it needs.
  • Future Fund: its chief investment officer calls the approach “a blank canvas, and a competition for capital, and constant evaluation”. There a toll road competes with macro hedge funds and inflation derivatives, and complementary assets face a lower hurdle than ones that add more of the same.
  • CalPERS: a new investment is paid for by selling a risk-equivalent amount of existing assets. Its board example funds $5bn (as of Jan 2025 · source) of infrastructure with an equity beta of 0.6 (as of Jan 2025 · source) by selling $3bn of equity and $2bn of cash (as of Jan 2025 · source): equity risk is unchanged and only active risk rises.
  • CPP Investments: under its relative value framework, programmes compete centrally on extra return after all costs, including the liquidity they use. In its example Deal A offers 16% against roughly 13% required (as of Apr 2026 · source) and Deal B 14% against 9% required (as of Apr 2026 · source), so the lower-return deal may add more per unit of scarce capital. The chief investment officer reviews every strategy yearly and resets its capital budget.

Sources: CAIA Association 2024, pp. 17, 27–28; Bridgewater Daily Observations podcast 2024, Ch. 2, Ch. 4; CalPERS Board 2025, slides 7–8; CPP Investments Insights Institute 2026, pp. 6–8; CPP Investments 2026, “Setting targets for active and balancing strategies”; A. Ang, M. Brandt, D. Denison for the Norwegian Ministry of Finance 2014, pp. 75–77

Expert view and evidence

Most definitions come from bodies that promote the total portfolio approach (TPA). The Thinking Ahead Institute names a competition for capital among all opportunities as a core feature, and CAIA calls the need to justify each extra dollar against every alternative TPA's defining difference. The CFA Institute's guide frames it as judging each new opportunity's contribution to the fund's risk factors, with the cost of capital central.

Norway's 2014 review sets out the mechanics: each investment needs two decisions, the asset to buy and the funding mix of reference-portfolio assets to sell, ideally chosen independently of the deal team. It is opportunity cost made operational: the best marginal contribution to the whole fund wins, not the best asset in each class. Funds run it through an optimiser with judgement (NZ Super), a central investment committee (CPP) or a formula (CalPERS).

CAIA finds it rarer than imagined, as siloed teams defend their patch, and 3 of 10 (as of late 2025 · source) respondents to a CFA Institute survey named choosing the market factors for the comparison a top challenge. Funding rules also depend on estimates of private assets' market sensitivity, which smoothed valuations distort.

No study isolates what competition for capital itself adds, and no controlled study shows that TPA beats a traditional strategic asset allocation: the CFA Research Foundation's 2026 review finds the literature does not establish systematic outperformance. The Thinking Ahead Institute's 1.3% a year (as of 2025 (study 2024) · source)1 adopter edge came especially through larger private-asset allocations.

Sources: Thinking Ahead Institute 2019, p. 2; CAIA Association 2024, pp. 14, 26, 28; CFA Institute Research & Policy Center 2026, pp. 27, 40; A. Ang, M. Brandt, D. Denison for the Norwegian Ministry of Finance 2014, pp. 75–77; CAIA Association & Thinking Ahead Institute 2025, p. 18; CalPERS Board 2025, slide 7; Wilshire 2025, p. 3; CFA Institute Research Foundation 2026, pp. 36–39; Thinking Ahead Institute & Future Fund 2025, closing report pp. 19–20

Notes on the numbers

  1. 1.3% a year, Thinking Ahead Institute peer study: ten-year performance difference between its TPA and SAA groups: From one self-classified peer study that its own authors say has data issues; first reported as 1.8%. The Thinking Ahead Institute, which promotes TPA, does not disclose the method or risk adjustment, calls the test crude and links the edge especially to larger private-asset allocations. It does not show that competition for capital itself adds return.

Common misunderstandings

“Competition for capital means colleagues fighting each other for money.”

In fact:

The ideas compete; the people are meant to work as one team. The Thinking Ahead Institute contrasts traditional set-ups, where several teams compete for allocations, with TPA, where one team collaborates and judges every idea by what it does for the whole fund.

Sources: Thinking Ahead Institute 2019, p. 4

“Only new deals have to prove themselves.”

In fact:

Holdings the fund already owns face the same test. NZ Super asks whether existing investments still earn their place or should be sold, and CPP Investments treats resizing and selling as just as important as new deals.

Sources: CAIA Association 2024, p. 27; CPP Investments Insights Institute 2026, p. 6

“The idea with the highest expected return wins.”

In fact:

Not necessarily. Fit with what the fund already owns, the liquidity an asset ties up and the work it creates all count. NZ Super judges contribution per unit of liquidity used, and in CPP's example a lower-return deal can beat a higher-return one once each is set against its own required return.

Sources: CAIA Association 2024, pp. 27–28; CAIA Association blog 2025, section “Liquidity and Fit Come First”; CPP Investments Insights Institute 2026, p. 7

“If an asset class is below its target weight, the gap should be filled.”

In fact:

Not even then. NZ Super's toll road goes ahead only if it beats the best alternatives across all asset classes, even when real assets are below their strategic level, and CPP Investments says it never makes an active investment simply to fill a gap.

Sources: CAIA Association 2024, p. 27; CPP Investments 2026, “A Total Portfolio View: Investment selection”

Check yourself

NZ Super's real assets are below their strategic level, and its infrastructure team has found an attractive toll road. Under competition for capital, when should the deal go ahead?

Related

Sources

  1. The Total Portfolio Approach (TPA): A Practical Guide for Navigating the Transition to TPA. CFA Institute Research & Policy Center (R. Urwin & G. Hayman), 2026.
  2. Total Portfolio Approach: A Critical Literature Review. CFA Institute Research Foundation (R. Elkamhi and J.S.H. Lee), 2026.
  3. Total Portfolio Approach (TPA): A global asset owner study into current and future asset allocation practices. Thinking Ahead Institute (WTW) with NSW TCorp, 2019.
  4. From Vision to Execution: How Investors Are Operationalizing the Total Portfolio Approach. CAIA Association & Thinking Ahead Institute (A. Filbeck, J. Bok), 2025.
  5. Innovation Unleashed: The Rise of the Total Portfolio Approach. CAIA Association (with Future Fund, CPP Investments, NZ Super, GIC), 2024.
  6. Review of the Active Management of the Norwegian Government Pension Fund Global. A. Ang, M. Brandt, D. Denison for the Norwegian Ministry of Finance, 2014.
  7. Global Asset Owner Peer Study on Best Practices (2024). Thinking Ahead Institute & Future Fund, 2025.
  8. Study gives evidence of value-add from TPA over SAA. Top1000funds, 2024.
  9. Our Investment Strategy (Total Portfolio Approach, Market Risk Targets, Strategic and Benchmark Portfolios). CPP Investments, 2026.
  10. Investing in Uncertain Times: Achieving Disciplined Flexibility in the Total Portfolio Approach. CPP Investments Insights Institute (S. Shen, D. Walker, G. Rubin), 2026.
  11. No Sacred Cows: New Zealand Super's Journey Towards TPA. CAIA Association blog (Charles Hyde, NZ Super), 2025.
  12. Future Fund CIO Ben Samild on Building a Resilient Total Portfolio (transcript). Bridgewater Daily Observations podcast, 2024.
  13. GIC's Total Portfolio Approach (ThinkSpace). GIC (Dr Chiam Swee Chiang), 2022.
  14. Wilshire opinion letter on ALM / TPA. Wilshire (S. Foresti, T. Toth), 2025.
  15. Board Education Day: TPA and transition considerations. CalPERS Board, 2025.