Strategic asset allocation

Strategic asset allocation is about investing for the long term. It is about creating benchmarks for investors. We have developed a number of tools that integrate economic scenario analysis with traditional portfolio optimisation techniques.

Fathom Financial Consulting’s models offer a cutting-edge quantitative solution to the problem of integrating economic ‘views’ about the future with optimal asset allocation for the longer-term. Elements of our approach have been employed by a number of large long-only investment institutions to help inform their benchmark selection; and to supplement their existing processes with more economic analysis, as well as ‘scenario-based’ as opposed to ‘historical data based’ risk analysis.

For example, our strategic asset allocation models often use a ‘Markov-Switching’ approach, in which the economy can be in any one of a finite number of ‘states’, for example ‘boom’, ‘business-as-usual’ and ‘bust’, with a given probability at any given time. Each of these ‘states’ is itself stochastic, but mean asset returns, variances and covariances will differ in a systematic way between states. Simulated stochastically, these models generate asset return distributions at any point in the future that are non-normal and reflect both the history of returns and the views of the long-term investor, as expressed in the economic scenarios and probabilities attached to them.

For a full description of our generic model for strategic asset allocation model, please click here. Or, if you would like further information on strategic asset modeling, please contact us at enquiries@fathom-consulting.com or call us on +44 (0)20 7796 9561.