After completing the analysis of the portfolio or plan, step two involves the presentation of recommended enhancements to the current portfolio or plan structure.

  1. Selection of approved asset classes to be used in the portfolio or plan
  2. Asset allocation analysis and modeling
  3. Asset/liability modeling
  4. Development of Custom Target Date Funds modeling for Defined Contribution Plan
  5. Development of spending policy for Endowment/Foundation Portfolios.
  6. Provide Fiduciary Education program for Boards, Committees and Staff.

Asset Classes

A major step in the development of client portfolios and plans center around the approval of asset classes to be utilized in the construction of the diversified portfolio or plan.  This includes a component of the client’s Investment Policy Statement that addresses the selection of the major asset classes.


Asset Allocation

We currently utilize Asset Allocation optimization software, with Monte Carlo simulation capabilities.

Our asset optimization and analysis modeling include a set of capital market assumptions, developed by Callan Associates, characterizing the expected future market performance of the major asset classes.  These performance expectations are based on a five-year outlook for the US and global economies as well as historical asset class performance, and include the expected returns and risks for the asset classes and expected correlations between asset classes.

A well-conceived asset allocation strategy will allow investors to control risk and improve overall performance.  We view risk control as a critical point in our asset allocation efforts with clients.  In effect, we strive to develop appropriate long-term portfolio strategies, which allow clients to achieve investment objectives with the least amount of risk.

In creating an asset allocation strategy, we utilize the following two approaches:

The Capital Markets Model

A traditional optimization approach where asset allocation is derived from expected returns, risks and correlations for the individual asset classes along with an economic scenario where assets are allocated on how they are expected to perform in multiple economic environments.

We blend the traditional Capital Markets asset allocation model with a common sense economic scenario analysis overlay.

In the chart below, we have summarized how we view certain broad asset classes and the role that they can play in portfolio development.


The Capital Markets Assumptions

Capital market projections must first be in place in order to recommend strategic asset allocation targets for clients.  Asset Strategy Consultants utilizes capital market projections developed and maintained by Callan Associates. Callan develops its own proprietary capital markets assumptions that are used in its various asset allocation models. The inputs to these models – expected return, standard deviation, and correlation coefficient for each asset class – are established after reviewing the principles of capital market theory, historical performance data for each asset class, and trends in the market, both past and present.

The capital markets assumptions are based on a five-year projection.  Callan has chosen to use a five-year investment horizon because experience has shown that it is the most appropriate unit of time for modeling simulations, even when the client’s actual investment time horizon is substantially longer.

Asset / Liability Monitoring

The Asset Allocation and Liability Study will be controlled by our staff in our Hunt Valley office and, based upon the complexity, we will engage the services of another firm, such as Callan Associates, or an actuarial firm to provide technical assistance on the liability study.

An asset/liability study incorporates the actuarial assumptions made in each plan’s most recent actuarial report. A liability model is constructed of each plan using the most recent actuarial valuation. This model allows us to project all of the key dimensions of the plan (e.g., membership, salary, benefits, liabilities, and contributions) to determine their sensitivities to changes in future inflation and interest rates (the two primary drivers of liability volatility) and to evaluate the impact that various asset allocation mixes have upon the funded status.

Target Date Funds

We provide customized asset allocation solutions for Lifecycle Funds, whether a client prefers Risk Based or Target Date models.  Our approach is to work closely with the client to develop the asset allocation strategies that reflect the demographics and risk tolerance factors of the Plan participants.

Over the last five-years, the Defined Contribution Plan marketplace has migrated to offering target date funds over risk-based models.

“It is estimated that in the near future ‘between 50 and 60 percent’ of all plan assets held in individual account plans will be invested in target date funds.”

Source: .S. Department of Labor Advisory Council on Employee Welfare and Pension Benefit Plans, “Report on Hard to Value Assets and Target Date Funds.”

“…a ‘custom’ TDF may offer advantages to your plan participants by giving you the ability to incorporate the plan’s existing core funds in the TDF.”

Source: U.S. Department of Labor Employee Benefits Security Administration February 2012

“Non-proprietary TDFs could also offer advantages by including component funds that are managed by fund managers other than the TDF provider itself, thus diversifying participants’ exposure to one investment provider.”

Source: U.S. Department of Labor Employee Benefits Security Administration February 2012

Benefits of Custom Target Date Funds



Spending Policy

A well-designed endowment/foundation spending policy balances the need for current spending with the goal of supporting future expenditures into perpetuity.  As institutions periodically review their asset allocation policies, it is equally important that they review their spending policies because the two are interdependent and critical to the long-term success of any endowment/ foundation portfolio.

In an effort to customize solutions tailored to their specific programs, we review each client’s spending policy, institutional goals, risk tolerance, liquidity needs, operational dependence on the endowment/foundation, and ongoing grant commitments.

Our spending policy analysis stress-tests a portfolio under various economic environments, assessing the growth in assets and spending under adverse, variable market conditions.

Fiduciary Education

One of the most important roles of a consulting firm is to provide ongoing education to their clients.  Since our inception in 1991, client education has been an important component of our institutional investment management consulting services.

Our educational efforts are focused on Client Boards, Internal Staff and Investment Committees, and we have found over the years clients appreciate the opportunity to gain more knowledge concerning the oversight of their investment portfolios and retirement plans.

Education is traditionally delivered through research papers, webinar events and client workshops.