Overview of Asset Allocation

LEARNING OUTCOMES

The candidate should be able to:

• describe elements of effective investment governance and investment governance considerations in asset allocation

• formulate an economic balance sheet for a client and interpret its implications for asset allocation

• compare the investment objectives of asset-only, liability-relative, and goals-based asset allocation approaches

• contrast concepts of risk relevant to asset-only, liability-relative, and goals-based asset allocation approaches

• explain how asset classes are used to represent exposures to systematic risk and discuss criteria for asset class specification

• explain the use of risk factors in asset allocation and their relation to traditional asset class–based approaches

• recommend and justify an asset allocation based on an investor’s objectives and constraints

• describe the use of the global market portfolio as a baseline portfolio in asset allocation

• discuss strategic implementation choices in asset allocation, including passive/active choices and vehicles for implementing passive and active mandates

• discuss strategic considerations in rebalancing asset allocations