Asset allocation is the single most important
investment decision a client will make. We develop
asset allocation policies to provide the highest
level of confidence that our client’s investment
objectives will be met over their time horizon.
All of our integrated asset-liability analyses
take into account market uncertainty. Our experience
in this field goes back to the mid-1970’s when
we worked on the very first stochastic asset-liability
optimization model.
Our first step is to understand
our client’s financial objectives and requirements.
We then develop realistic assumptions concerning
expected returns, volatility and return correlations
for each asset class, including hedge funds, commodities,
and private equity. We analyze this data using our
proprietary asset allocation simulation models.
Based on thousands of scenarios, we determine the
probabilities that the client’s objectives will
be met and cash flow needs satisfied under different
asset allocations. After performing sensitivity
analyses, we document and present our findings and
recommendations to the client for their review and
decision.
We recommend that asset allocation policies be reviewed whenever it appears that
our client's needs or capital markets expectations have changed significantly.
