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Holly LaFon
Holly LaFon
Articles (8899)  | Author's Website |

GMO Commentary - Multi-Asset Class Strategies: How Do I Use Thee? Let Me Count The Ways

GMO Asset Allocation Insights by Peter Chiappinelli

June 30, 2018 | About:

Executive Summary

Not too long ago, investors, consultants, and advisors in the asset management field struggled with the role of Multi-Asset Class (MAC) strategies. They were perceived as misfits, given their cross-asset mandate and their dynamic nature. Today, however, they are utilized and embraced in all sorts of different settings. Given our large footprint and multiple decades of managing MAC strategies, we looked at our client base and determined that there are five (six, if you count their use in Target Date Funds as a distinct usage) “buckets” that represent the ways in which investors appear to be using them: 1) Liquid Alternatives; 2) Core; 3) “Swing” Manager (in both a traditional policy benchmark setting, or as part of a Target Date setting); 4) Liability Driven Investing + Diversified Growth; and 5) a Real Return Strategy. This paper helps explain the driving rationale for each.

Introduction

Once perceived as misfits for investors, Multi-Asset Class strategies are now used for all sorts of portfolio solutions.

Not too long ago, investors, consultants, and advisors in the asset management field struggled with the role of Multi-Asset Class (MAC) strategies, because these products, at first blush, appeared nonsensical. They were misfits. Professionals who had been trained to think in terms of well-defined style boxes, tracking error metrics, benchmark-centric frameworks, and formal re-balancing disciplines were often flummoxed by products that not only had multiple and varied risk exposures, but whose risk exposures could vary through time. MAC strategies triggered a barrage of pointed questions:

  • “Where do they fit?”
  • “How do I know what you’ll own next quarter? You’re constantly changing your stripes.”
  • “How do I measure you? How do I know if you’re any good?”
  • “How can I model you in a Mean Variance Optimization exercise?”
  • “Where do I source capital to fund this thing? Is it more like equities? Fixed income? Cash-plus? Alternatives? What is it, exactly?”

Continue reading here.

About the author:

Holly LaFon
I'm a financial journalist with a master of science in journalism from Medill at Northwestern University.

Visit Holly LaFon's Website


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