Evaluating Asset Allocation Strategies for Sovereign Wealth Funds

As a portfolio manager in charge of a sovereign wealth fund (SWF), you are tasked with evaluating the strategic objectives of the fund. Sovereign wealth funds are state-owned investment funds or entities that are established to invest surplus funds. These funds typically aim to achieve long-term financial returns while also considering broader economic and social objectives for their home country.

During a recent stakeholders' meeting, several key goals were identified for the SWF: (1) financial returns sufficient to support domestic social programs, (2) investment in domestic infrastructure, and (3) hedging against economic shocks.

In your essay, discuss how these goals could influence the asset allocation strategy of the SWF. Additionally, analyze how different economic scenarios might affect the priorities of the fund's strategic objectives and suggest how the management team can balance these priorities in the asset allocation process. Support your discussion with specific examples or hypothetical scenarios.