Strategic Asset Allocation

The strategic asset allocations for large institutional portfolios remain anchored on the efficient frontier methodology. The traditional approach for implementing this methodology faces many issues. The more important of these are determining the appropriate and internally consistent set of capital market assumptions, as well as explicitly accounting for transition costs associated with moving to a new strategic asset allocation. This paper addresses these issues and illustrates how the modified approach was used to determine the strategic asset allocation for a large U.S. public pension plan.

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