Pension Fund Strategic Asset Allocation Proposal

You are an investment consultant for a large defined benefit pension fund that manages $20 billion in assets. The fund has a diverse roster of beneficiaries, including employees from both public and private sectors. Over the past decade, the fund has adhered to a traditional investment strategy, primarily focusing on equities and fixed income. Recently, however, the investment committee has expressed a desire to diversify the portfolio to enhance returns and mitigate risks, especially in light of anticipated market volatility and changing demographic trends among retirees.

Your task is to develop a comprehensive proposal outlining a new strategic asset allocation plan. This proposal should include an assessment of current investment risks, a discussion of alternative asset classes that align with the fund's long-term liabilities, considerations regarding ESG (Environmental, Social, and Governance) factors, and how these elements will cater to the changing needs of the beneficiaries. Additionally, you must incorporate an evaluation of the expected return of the new strategy against the liabilities of the fund.

In your response, consider the impact of rising interest rates, the implications of inflation on purchasing power for beneficiaries, and the need for a more dynamic investment strategy that can adapt to unforeseen market conditions.