Strategic Asset Allocation for Corporate Pension Fund

A large corporate pension fund is reviewing its asset allocation strategy to meet its long-term liabilities while considering the evolving regulatory environment and market conditions. The fund currently has a diversified portfolio consisting of equities, fixed income, alternative investments, and real estate. However, due to recent volatility in the markets and an increased focus on sustainable investing, the trustees are considering adjustments to the allocation.

As a portfolio manager, you have been tasked with preparing a recommendation for the pension fund’s strategic asset allocation. In your response, discuss the following elements:

1. The impact of changing market conditions and expected returns on different asset classes.
2. The importance of aligning the investment strategy with the fund’s liabilities and duration matching.
3. The role of sustainable investing in shaping the new asset allocation and the potential trade-offs involved.
4. Your suggestions for specific asset allocations across the different classes—in particular, any suggested changes to equities, fixed income, alternatives, and real estate.