Asset Allocation: The Process

Start with the end in mind.

—Stephen Covey

Currently, the starting point for investing in the industry is to assign various investments to differing buckets or asset classes, and then optimize the sizing of each bucket based on the average performance of the asset class, with the goal of reaching some “efficient frontier.” First the investment committee or consultant decides how many and which buckets to name. Then they decide which bucket each investment belongs to. Some can be easy, but others not so much. Should this investment be called distressed debt, or is it high-yield? Does the high-yield manager fit into the fixed income class or alternative class? Is international equity separate from domestic ...

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