Strategic Asset Allocation Adjustments in a Changing Economic Environment

As the Chief Investment Officer of a multi-billion dollar pension fund, you are tasked with reallocating assets in response to significant changes in the macroeconomic environment. Recent data shows an increase in interest rates and inflation expectations, coupled with geopolitical tensions that are affecting stock market volatility and bond yields. Your existing strategic asset allocation has a heavy tilt towards equities, with a targeted allocation of 70% equities and 30% fixed income.

Given these developments, evaluate the appropriateness of the current strategic asset allocation and propose adjustments that address the risks associated with the current economic climate. In your answer, consider the impact on the fund's risk-return profile and align the asset allocation changes with the fund's long-term goals, liabilities, and risk tolerance. Justify your proposed changes with reference to modern portfolio theory, expected returns, and factors influencing asset class performance.