Total Portfolio Approach raises the bar for private credit managers

November 11, 2026

As institutional investors move beyond traditional asset-class allocations, private credit is increasingly competing for capital across the whole portfolio. The shift could create opportunities for alternative credit, but managers will face greater scrutiny over returns, risk, and valuations.

Pirkko Juntunen

The move towards a Total Portfolio Approach (TPA) could create opportunities for private credit, but managers will have to work harder to demonstrate why their strategies deserve a place in pension fund portfolios.

“Broadly, TPA creates an opportunity for private credit. Net, it is a positive, but it raises the bar,” says Anant Kumar, global investment strategist at Benefit Street Partners, Franklin Templeton’s alternative credit business.

Anant Kumar, global investment strategist at Benefit Street Partners

“The model removes asset class silos and requires every manager to compete for every marginal dollar against the allocator’s total portfolio objectives. Previously, a private credit manager only competed against other alternatives in the same bucket,” Kumar says.

TPA shifts investment decision-making away from fixed asset-class allocations towards assessing how each investment contributes to the objectives of the overall portfolio. The CFA Institute’s July 2026 report describes it as an integrated, goal-driven and dynamic framework.

CalPERS is among the large institutional investors making the transition. Its board voted in November 2025 to replace its strategic asset allocation approach with TPA, with the change scheduled to take effect from 1 July 2026.

Greater competition, greater dispersion

Under TPA, private credit managers will no longer be assessed primarily against peers within their own asset class. Their contribution will be considered alongside other investments competing for the same capital.

Sauli Hämäläinen, CIO at Merimieseläkekassa, the Seafarers’ Pension Fund in Finland, says the approach is consistent with the fund’s existing investment culture.

“Our team is small, so we do not operate in silos, and decision-making across asset classes is flexible. Research suggests that the TPA approach has delivered better investment returns. We require a higher return, or liquidity premium, from unlisted investments relative to liquid assets. Each asset class has to compete for capital. We do not fill an allocation simply for the sake of it if we cannot find attractive investment opportunities in terms of the risk/return ratio.”

“Beating a narrow benchmark no longer justifies a manager’s place in the portfolio,” Kumar says.

He expects the approach to widen the differences between managers, benefiting those able to demonstrate genuinely differentiated returns while putting pressure on more commoditised strategies.

“It’s going to be a net positive for the industry, but that doesn’t mean it’s a win for everyone. It’s not a free pass. You will see more dispersion,” he says.

For example, direct lending strategies that offer exposure similar to broadly syndicated loans may find it harder to justify their place if they do not provide sufficient additional return or diversification.

Tina Söderlund-Boley, co-founder of 59 Capital Partners, says investors also need to distinguish between the different sources of return across private markets.

“Private credit is primarily about generating income, whereas private equity focuses more on capital appreciation and value creation.”

However, she sees potential overlap between infrastructure and some areas of private credit, particularly large-scale direct lending, where underlying investments and expected returns can be similar. Private credit itself encompasses a wide range of strategies with different risk and return profiles.

Liquidity and the search for diversification

Krupesh Shah, head of origination at Alvine Capital, said the question investors are asking is less about potential upside than about the quality of the return relative to the risk taken. Prospective investments are increasingly judged on what they add to the overall portfolio, he said, including their correlation with existing exposures, the income they generate, their sector sensitivities, and where they sit on the liquidity spectrum.

Investors must also consider how the J-curve of a private-market commitment fits into the wider portfolio, though for credit it tends to be shallower than for private equity where income starts flowing early.

Liquidity is particularly important for pension funds, which need to balance investment returns against benefit payments and other cash requirements. The illiquidity premium offered by private credit is valuable only if investors can hold assets for long enough and meet their liabilities.

“There is a genuine illiquidity premium,” Kumar says. But he believes some upper middle-market direct lending strategies may come under pressure as spread compression reduces the additional return available for taking illiquidity risk. In some cases, he says, the premium can be small compared with a B3-rated broadly syndicated loan.

Asset-based finance (ABF), by contrast, could benefit from investors looking more closely at diversification and sources of return.

“Asset-based finance strategies could be big beneficiaries of TPA,” Kumar says.

Under traditional allocation models, alternative investment budgets may already be largely occupied by private equity and private credit, leaving less room for specialist strategies. A whole-portfolio approach could give investors greater flexibility to allocate to strategies that offer different exposures.

Söderlund-Boley cautions that diversification across asset-class labels does not necessarily mean diversification of underlying risks.

“You can have a portfolio that looks well diversified on paper, with allocations to private equity, private credit, infrastructure and other alternatives, but in reality, many of those investments may be exposed to the same underlying risks”, she says, adding that:

“Diversification isn’t just about investing across different asset classes. It’s about understanding what risks you’re actually taking.”

Transparency and valuation discipline

Shah also expects greater demands on managers for transparency and portfolio-level risk information, with more detailed analysis needed to help investors understand how individual investments interact with other exposures and contribute to the overall portfolio.

He also pointed to growing cost sensitivity among institutional investors. Larger investors deploying substantial amounts of capital may be better placed to negotiate fees and seek more efficient structures, he said. That is not necessarily a direct consequence of TPA, but it adds to the pressure on managers to demonstrate value for money alongside investment performance.

For Söderlund-Boley, understanding the sources of performance is central to the assessment.

“Investors need to understand not just performance, but what’s actually driving those returns.”

Kumar also identifies marks and valuations as a significant challenge for private credit, where assets are not traded as frequently as public securities.

“One of the biggest challenges in private credit is marks and valuations,” he says.

He expects CIOs to favour managers that provide consistent and timely valuations, supported by clear communication.

“CIOs don’t want to see the same loan marked down overnight in one portfolio and then face a quarter-long delay before the same write-down appears in another. They want frequent communication and transparent, timely marks.”

Research published by The Pensions Regulator in September 2026 found that UK pension schemes consider factors including expected returns, risk, diversification, cash flow profiles and liquidity when assessing private-market investments. It also highlighted limited appetite among many defined benefit schemes to increase private-market exposure, partly because of illiquidity and the need to retain flexibility as schemes approach their end game.

TPA does not automatically mean higher allocations to private credit, or guarantee that any particular strategy will benefit. Its effect will depend on how investors assess the contribution of individual investments to their wider objectives.

“The proof will be in the performance. If early adopters demonstrate that TPA delivers better risk-adjusted outcomes, others will follow,” Kumar says.

For private credit managers, the message is that allocations can no longer be taken for granted. They will need to demonstrate not only attractive returns, but also why those returns justify the risks, liquidity constraints, and costs relative to the alternatives available.

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