IQ Investment Quarterly
Asset Allocation Takes Center Stage
The shift away from products to an objectives-based multi-asset solution reinforces the need for deep asset allocation expertise. In many ways asset allocation has become the new model of active management, where understanding the drivers of risk across asset class exposures can help investors build more resilient portfolios and incremental return. Applying a factor lens to portfolios can also help investors reduce risk in more comprehensive, dynamic and capital-efficient ways. A recent engagement with a large public pension fund reconsidering its fixed income program illustrates how important factor know-how and asset allocation expertise have become.
Despite the well-known shortcomings of today’s fixed income indices, most institutional investors continue to search for active fixed income managers benchmarked against the Bloomberg Barclays Aggregate Bond Index (the Agg) or the Global Aggregate Bond Index (the Global Agg). That search process typically involves an RFP, followed by on-site visits from managers, walking through investment philosophy, process and performance, hoping to convince the investor that their particular product is best poised to beat the index.