I was discussing portfolio construction with a potential partner recently and we landed on something more investors should pay attention to.
For decades, the formula was equities for growth, bonds for protection and alternatives for diversification. It sounds sensible until markets turn ugly and everything falls together, like a group of friends who all swore they were different people and then show up to the party in the same shirt.
Different asset classes are not different sources of risk. You can own equities, bonds, private credit plus a handful of alternatives and still be exposed to the same underlying forces.
That is why the Total Portfolio Approach, used by some of the world’s largest sovereign wealth and pension funds deserves attention. Instead of sorting investments into buckets, it asks what actually drives returns and how those drivers behave together.
Multi-strategy portfolios can do this well. Combine strategies thoughtfully, manage risk properly, and you get several sources of return without betting on one market direction. Some funds never get there, and the strategies, the risk controls and the manager’s experience decide which kind you own. Well, anyone can look like a genius when the tide is lifting every boat including the leaky ones.
Diversification is not about owning more products. It is about knowing what you own, why you own it, and what happens when markets move against you.