Services

Asset Allocation/Asset Liability & Spending Studies


Historic investment studies have demonstrated that a portfolio’s strategic asset allocation is responsible for 75-90% of a fund’s total return. Policy formulation and asset/liability analysis is an integrated two-step process. First one completes the asset allocation study itself, followed by development and adoption of an investment policy consistent with the study’s findings.


We help institutional investors identify a strategic asset allocation policy that represents the synthesis of optimal portfolio construction methods, forward-looking capital markets and asset class assumptions, and detailed expected liability/spending profiles. Our research group develops a set of input assumptions that we recommend our clients use for strategic asset allocation studies. These assumptions are based on a combination of:


  • Financial theory
  • Capital market history
  • Current yield curves
  • Market expectations for inflation


Our asset allocation assumptions are strategic in nature — they do not attempt to anticipate or trade on short-term market volatility. Rather, we aim to capture the very powerful long-term diversification benefits present among primary and secondary asset classes.


During each study’s initial phase, we help our clients develop and deliver various critical inputs pertaining to their risk tolerance, return expectations and the liability structure of their fund, including:


  • Actuarial Assumptions (for defined benefit plans)
  • Participant Demographics (for defined benefit plans)
  • Cash Flows and Contribution Patterns
  • Allowable Asset Classes
  • Investment Time Horizon
  • Investment Restrictions
  • Liquidity Requirements
  • Spending Policies (for Endowments and Foundations)


Early in 1995, we pioneered the concept of an integrated spending model (“ISM”) for endowments and foundations. This captures the full range of cash flows opportunities and obligations faced by these organizations as asset allocation inputs, including investment return, program development, capital spending, debt service, and operating budgets. This ensures our multi-period forecasts will ultimately capture the “real world” asset volatility associated with varying investment returns and spending patterns. The result is a very careful, “granular” analysis of integrated returns and spending, which is especially useful in setting a strategic asset allocation policy specifically matched to each eleemosynary’s specific needs.