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

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.