Strategic Asset Allocation for Sovereign Wealth Funds

In the context of institutional portfolio management, sovereign wealth funds (SWFs) play a pivotal role in global finance. These state-owned investment funds are utilized by countries to manage national savings, stabilize the economy during fluctuations, and fund long-term social and economic goals. Consider a hypothetical sovereign wealth fund, the Global Future Fund (GFF), which has $200 billion in assets and aims to enhance national wealth while ensuring sustainable long-term returns. The GFF is tasked with balancing risk and return in the face of global economic uncertainties, evolving geopolitical landscapes, and varying investment horizons.

As a portfolio manager of the GFF, you are to outline a strategic asset allocation framework that incorporates the following elements: diversification across asset classes and geographies, incorporation of ESG (Environmental, Social, and Governance) factors into investment decisions, and provisions for liquidity to meet national economic needs. Additionally, discuss the challenges faced by the GFF when implementing this framework, including potential market reactions and the impact of geopolitical factors.

Your answer should demonstrate a comprehensive understanding of sovereign wealth funds, rigorous analytical thinking, and the ability to create a structured investment approach aligned with national priorities.