Asset Allocation Philosophy

  • Isn’t just about allocating assets
  • Requires an understanding and accurate measurement of the liabilities and Funded Ratio
  • Is responsive to the client’s Funded Ratio. Requires a Custom Liability Index (CLI) be installed to accurately measure and monitor the size, shape and risk/reward behavior of liabilities
    • A Surplus position should have a radically more conservative asset allocation than a deficit position and vice versa


  • Assets should be subdivided into Beta and Alpha portfolio groupings
  • The Beta portfolio is fixed income assets whose mission is to match and fund liabilities chronologically. Such a Beta portfolio is the low risk or core portfolio.
  • Alpha portfolio(s) are assets whose mission is to outgrow liabilities and help erase any deficit. Alpha assets should not correlate well to interest rates so they can earn the most Alpha when interest rates trend upward.


  • Given a Custom Liability Index (CLI) the economic Funded Ratio can be accurately and frequently calculated.
  • The CLI also calculates the annual Alpha required to reach a fully funded status over the average life of liabilities (duration).
  • As the Alpha assets outgrow liabilities, any excess return above the annual Alpha needed is transferred over to the Beta portfolio.
  • Such a responsive Asset Allocation to the Funded Ratio secures the victory (Alpha), reduces the volatility of the Funded Ratio and lowers Contribution costs.

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