The Triumvirate Investment Paradigm : Strategic Asset Allocation in Property, Business, and Country Assets

45 Pages Posted: 14 Jun 2021

Date Written: May 29, 2021

Abstract

The purpose of this document is to outline the triumvirate investment paradigm as a strategic asset allocation blueprint for portfolio construction by categorizing assets into three distinct groups: Property, Business, and Country.

This triumvirate taxonomy fits better within the economic context of the Consumption Capital Asset Pricing Model, where we detail the macroeconomy in terms of its constituents of Consumption, Business Investment, and Government Expenditures. This segments into broadly equal market capitalization for these groups as well, with an equal importance for each part of the whole. For asset pricing, this leads to the development of Investment Selection within a particular group based on risk and reward characteristics, and the development of Investment Risk as an integral part of the investment process for Portfolio Construction in determining the diversification benefits across each group, where each group is a distinct correlation cluster.

In a zero rate economy, adoption of a triumvirate taxonomy in risk budgeting will lead to a shift of sovereign assets towards more equity-like participation in Infrastructure, which fits under the Country asset class. Equally, it will lead to less investment exposure in Private Equity. For ALM providers, it will involve a shift towards more illiquid assets, such as Property, Infrastructure and Private Credit, by recognition that the long-term liabilities are equally illiquid and well matched.

Keywords: Asset Allocation, Investment Paradigm, Triumvirate Taxonomy, Sovereign Assets, Zero Rate Economy, LDI, ALM, Asset Liability Modeling, Liability Driven Investments, Infrastructure, Property

JEL Classification: E10, E20, E44, F63, F65, G12

Suggested Citation

Khan, Taher, The Triumvirate Investment Paradigm : Strategic Asset Allocation in Property, Business, and Country Assets (May 29, 2021). Available at SSRN: https://ssrn.com/abstract=3858852 or http://dx.doi.org/10.2139/ssrn.3858852

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