Broad Strategic Asset Allocation: Sizing Allocations to Liquid and Illiquid Alternatives Alongside Traditional Assets

AQR

Research

21 pages Pages

AQR’s Portfolio Solutions Group explores the integration of liquid and illiquid alternative investments into traditional portfolios, aiming to enhance diversification and improve risk-adjusted returns.

Key Takeaways

Strategic Asset Allocation (SAA): Incorporating alternative assets into SAA can potentially expand the efficient frontier, offering better diversification benefits.
Risk and Return Assumptions: Proper estimation of risk and return characteristics for both liquid and illiquid alternatives is essential for informed allocation decisions.
Constraints and Modeling: Realistic modeling of constraints, such as liquidity and leverage, is crucial when integrating alternatives into traditional portfolios.
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