Integrated Asset Allocation

Many institutional investors periodically adopt an asset allocation policy that specifies target percentages of value for each of several asset classes. Typically a policy is set by a fund’sboardafterevaluatingtheimplicationsofasetofalternativepolicies. The staff is then instructed to implement the policy, usually by maintaining the actual allocation to each asset class within a specified range around the policy target level. Such asset allocation (or asset/liability) studies are usually conducted every one to three years or sooner when market conditions change radically. Most asset allocation studies include at least some analyses that utilize standard mean/variance optimization procedures and incorporate at least some of the aspects of equilibrium asset pricing theory based on mean/variance assumptions (typically, a standard version of the Capital Asset Pricing Model, possibly augmented by assumptions about asset mispricing.) In a complete asetalocationstudyafund’sstaf(oftenwiththehelpofconsultants) typically: 1. Selects desired asset classes and representative benchmark indices,