Each fund has its own investment profile with a stream of liabilities or future benefits. Asset allocation is the key determinant of portfolio performance. Diversification can dampen volatility, reduce risk and enhance returns. Pensions Invest over market cycles and mitigate risk through asset allocation by periodically rebalancing allocations and diversifying within asset classes by investment style. Indexed vs.active management.
Every asset class has long-term capital market assumptions.
The investment portfolio drives the plan funding. Asset classes not perfectly correlated to each other. Systemic vs. specific risks. Beta measures market sensitivity relative to relevant indices. Alpha measures the investment manager s skill or value added in a risk-adjusted setting.