Have you read anything about 'total portfolio approach' that institutions including CalPERS are starting to adopt? Here's a paper from the Thinking Ahead Institute that dives in too. It's pretty nebulous (so far). Copilot suggested the following "reference portfolio" to make up 35% of the portfolio;
- 40% Global equities
- 30% Global bonds
- 30% Inflation linked securities/real assets
And for the "completion portfolio" 65% divided as follows;
- 15% Private equity/venture
- 10% Thematic public equities
- 10% Opportunistic credit
- 5% Trend following/managed futures
- 5% Equity long/short or volatility arbitrage
- 5% Tail risk or macro hedge
- 5% Multi factor equity
- 5% Alternative risk premia
- 5% Cash or T-bills
Here's how I built it out in the exact order listed above.
We usually use BX as a proxy for private equity but 15% is too much and PSP reduces the favorable skew that BX adds.
The back test is of course compelling but it's a portfolio that requires patience. Of the six full and partial years available to study, it lagged in four of them but to be fair, two of the years it lagged it was by only 3 basis points both times.
It's certainly not a simple portfolio however. I think it can be simplified.
Still not that simple but simpler with the biggest change probably that we took out the fixed income duration.
Sticking with domestic factor rotation with DYNF means it probably means it would lag if foreign equities go on a long run of outperformance.
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