Rethinking Asset Allocation
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Insights Global Macro Trends
Low bond yields, a surge in geopolitical tensions, and a shift towards fiscal stimulus are all fueling a fundamental rethinking by the investment management industry of how to generate the best risk-adjusted returns. Against this backdrop, we have tried to articulate actionable solutions to many of the most complex investment questions that we are increasingly fielding from clients who – like us – use a rigorous, top-down approach to asset allocation. An important message, we believe, is that – amidst lower expected returns – the traditional relationship between stocks and bonds is now starting to mean revert after a 20- year hiatus. As such, we think that most multi-asset class portfolios likely need to be restructured to thrive in the new environment that we envision. Within the private markets, we remain constructive on the illiquidity premium, especially in Private Equity and Real Assets at this point in the cycle. Overall, though, as investors migrate towards more thoughtful multiasset class portfolios to overcome the headwind of lower absolute returns, we think that there are some important ‘Rules of the Road’ to follow surrounding pacing, correlations, volatility, and liquidity, all of which matter to create successful outcomes for those who are currently rethinking their asset allocation.
