By Charles Hyde, PhD, Head of Asset Allocation, New Zealand Superannuation Fund
Fifteen years ago, we at New Zealand Superannuation Fund (NZ Super) set out to reshape how we think about building our portfolio, not as a collection of asset-class silos, but as a single, dynamic pool of capital.
This journey involved shifting from a strategic asset allocation (SAA) mindset to a total portfolio approach (TPA). Ever since, this has been slow, deliberate, and deeply transformative in terms of how we deliver outcomes for New Zealand. Along the way we’ve challenged long-held assumptions, overhauled governance, built new risk tools, and learned to make harder, but better, portfolio decisions.
The First Step: Clear Governance and Introducing a Reference Portfolio
At the beginning of the journey was when we made an important shift: we adopted a reference portfolio. On the surface, it’s a simple benchmark, a mix of global equities and fixed income with a small New Zealand equity allocation. But the purpose behind it was much more powerful: clear governance.
Previously, like many funds, the lines between the board and management were blurred. The reference portfolio changed this, forcing a clean division of labour: The board would define risk appetite and approve that benchmark and management would own how we invest against it.
That clarity, what’s the board’s job versus what’s ours, gave us the freedom to move beyond rigid asset class buckets and predetermined rebalancing cycles. We no longer needed the board to sign off on every single investment decision and instead focus on the most important objective: delivering returns for New Zealand.
Rethinking Risk: Balance, Not Just Protection
When you untether from SAA, risk management becomes both about stopping bad outcomes and avoiding taking on too little risk. Our mandate as a sovereign wealth fund is to maximize returns without undue risk. “Undue” goes both ways.
The reference portfolio sets the overall risk profile and acts as a translation of the board’s risk appetite. We regularly survey our board to calibrate tolerance: How deep a drawdown can you accept? How low a long-term return is too low? These are challenging but essential questions, and answers evolve as board members change.
We keep the reference portfolio deliberately simple because simplicity sharpens the risk conversation. We can focus on tail risk, liquidity, and long-run return potential without being lost in a long list of asset categories.
Alongside the reference portfolio, we manage an active risk budget that allows us to tilt and adapt. That’s where we go deeper into asset allocation and more tactical work. The point isn’t to chase every opportunity but to allocate risk where it’s most valuable and diversifying.
Building Tools and Culture to Match
Governance alone isn’t enough, you need infrastructure and culture. Over the years we’ve invested heavily in internal information systems to give decision makers timely, high-quality data on each asset’s risk, return, and diversification role. We also worked deliberately on collaboration across teams. A TPA mindset requires everyone across public markets, private markets, risk, and strategy to speak the same language about portfolio impact.
No Sacred Cows: Cleaning House and Tilting Smarter
Our first few years under TPA were about building a coherent portfolio strategy. This had implications at the allocation and manager level.
On the latter, we terminated strategies and managers that didn’t clearly add value when looked at through a total-portfolio lens. That meant fewer but deeper external manager relationships and a sharper sense of what each one contributed.
On the former, a major innovation was our strategic tilting program, an internally managed dynamic asset allocation process. Because the reference portfolio is reviewed only every five years, we needed a way to respond to shifting market attractiveness in real time. Strategic tilting lets us move exposure meaningfully but with discipline, backed by our risk budget. We started small, proved it out, and grew more comfortable sizing it bigger as performance justified.
This flexibility also let us make bold choices: for example, there were periods when we held essentially no real estate. That’s unusual for a fund our size, but if something isn’t attractive, we don’t include it just for optics or peer alignment. Of course, as we’ve grown, we’re mindful it’s harder to pivot in and out of whole asset classes at scale. But the mindset of “no sacred cows” remains critical.
Liquidity and Fit Come First
Perhaps the biggest mental shift is asking not just “does this investment beat its cost of capital?” but rather “how does it change the whole portfolio’s shape?” We weigh factor exposures, tail risk, liquidity drawdowns, and diversification of alpha sources before we add anything new. Some SAA frameworks treat these as afterthoughts but they become critical in TPA.
Lessons for Others Considering the Shift
For funds contemplating this move, I’d stress a few things we’ve learned:
- Start with governance, not products. Without clear decision rights and a benchmark like the reference portfolio, you’ll struggle to act dynamically without confusion or second-guessing.
- Keep it simple where you can. A simple, robust reference portfolio makes risk conversations and oversight far cleaner than a sprawling multi-asset benchmark.
- Build cultural muscle. TPA isn’t just math; it’s a way of thinking. Teams must collaborate, share insights, and accept portfolio trade-offs together.
- Be patient but decisive. We’ve evolved this for 15 years. Some things (like strategic tilting) started small and scaled only once proven. But we were also willing to exit strategies quickly when they didn’t fit.
The Journey Continues
Despite our progress, we don’t see TPA as “done.” Markets shift, our fund evolves, and so does our thinking. Each new step, whether refining risk tools, adapting to scale, or incorporating new sources of return, builds on the foundation of clear governance and holistic portfolio perspective.
The hardest part of leaving SAA isn’t the technical work; it’s the mindset shift. It’s moving from a checklist of allocations to a living, breathing portfolio where every piece is in dialogue with the rest. For us, that’s been worth it many times over.
Interested in learning more about the journey from SAA to TPA? Read From Vision to Execution: How Investors Are Operationalizing the Total Portfolio Approach and check out our Total Portfolio Approach Hub.
About the Contributor
Charles Hyde, PhD is Head of Asset Allocation for NZ Superannuation Fund. As Head of Asset Allocation, he oversees the construction of the Fund’s Reference Portfolio, the allocation of risk capital across the Fund, the determination of the cost of capital, modelling/monitoring of portfolio flexibility and the Guardians’ economics function. He has a PhD from the University of California, Berkeley.
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