Exploring Multi-Asset Solutions for Distinct
Investment Challenges
In this profile, we explore the evolving array of multi-asset
strategies and diverse roles they can play, with a focus
on how the PineBridge Global Dynamic Asset Allocation
Strategy is helping investors solve for their distinct
investment challenges.
AUTHORS:
Development from a product design perspective has
focused on targeted returns at a managed level of risk.
Equities, fixed income, and fixed blends of such asset
classes have struggled to deliver targeted outcomes in a
consistent manner within their constituents’ time-frames.
For qualified investors, hedge funds had been the strategy
of choice in an attempt to solve for these challenges. Many
investors are looking for other options outside of hedge
funds given their disappointing performance, uneconomic
pricing, unfriendly legal structures, scandals in some
instances, and a general lack of transparency.
We believe multi-asset strategies can be used within an
overall portfolio to provide solutions to many of the issues
investors face. These strategies offer the potential for:
MICHAEL J. KELLY, CFA
Managing Director,
Global Head of Multi-Asset
AGAM SHARMA
Senior Vice President,
Multi-Asset Specialist
A structural shift in asset allocation occurred after the
storm of the global financial crisis. The methods previously
employed focused primarily on relative return investing,
with approaches that ranged from short-term/tactical
to long-term/strategic, or some combination of the two.
The objectives of these strategies were increasingly
challenged post crisis. As a result, preferences shifted
toward total returns and outcome-based objectives,
which produced many new strategies and approaches.
The focus for most of these new strategies is on meeting
specific outcomes. Whether they are contemplating how
to meet the liabilities for a pension fund or endowment,
or how to generate income for retirement, the common
thread is the continual need to achieve outcomes.
• Consistent, sustainable performance towards absolute
return targets
• Downside protection and lower volatility
• Diversified sources of alpha at lower cost, consistent
with today’s concepts of good governance
• Access to characteristics of liquid alternatives
Like hedge funds, multi-asset represents a talent pool
instead of an asset class. Yet, taken as a peer group,
multi-asset objectives are arguably much more closely
aligned with most investors’ objectives. Beyond the
common characteristics listed above, the array and
profiles of multi-asset strategies have evolved to play
diverse roles in investor portfolios.
Differentiated Roles Within Investor Portfolios
Multi-asset strategies can generally be categorized in
three segments.
additions seek overall risk reduction for the portfolio,
while providing exposures that would be difficult to
obtain otherwise for a traditional investor.
1. Alternative to fixed income: consists of strategies where
risk generally should not exceed that of fixed income
3. Alternative to equities: the emphasis is more on
broadly. In this segment, the focus is on risk with a
providing return through growth assets, with less than
relatively lower focus on return, as these strategies
two-thirds of the risk of equities. We believe that in the
seek to reduce interest rate sensitivity and outperform
world ahead of low nominal returns and higher volatility
fixed income in a rising rate environment.
– and with investors focused on outcomes and absolute
returns – this category will become increasingly
2. New strategic mix: a broader segment that includes
important.
risk parity, risk factor parity and diversified growth, and
falls between the fixed income and equity alternative.
It is within this third segment that the PineBridge Global
The focus is predominantly on new strategic allocations Dynamic Asset Allocation Strategy resides, as our focus
that are not correlated with the overall strategic mix
is on growth-oriented, equity-like returns with less risk.
of the investor. Nuanced asset class or risk factor
Description ►
Objective Return (Per annum) ►
Objective Risk (Volatility per annum) ►
Role in Portfolio Context ►
Alternatives to Fixed Income
New Strategic Mix
Alternatives to Equities
Target volatility of fixed
income but with potential
for higher returns and low
interest rate sensitivity
Diversified portfolios
including liquid and illiquid
alternatives. Various risk
management approaches
Target return of equities with
lower (2/3rds) volatility of
equities; focus on growth assets
CPI1 plus 2-3%
CPI1 plus 4-5%
CPI1 plus 5-6%
3-4%
5-7%
8-10%
Reduce interest rate sensitivity
without raising risk level
Diversify by introducing
additional asset classes
(alternatives & illiquids)
Diversification from equities/
bonds while maintaining return
level
• Liquid alternatives strategy
• Objective-based (absolute/total return or target risk)
• Diversifier for equity/bond portfolios
Common Characteristics
CPI is defined as US CPI ex-food & energy. There is no assurance that any investment objective or target will be achieved. For illustrative purposes only. We are
not soliciting or recommending any action based on this material. Past performance is not indicative of future results. The targeted returns provided are used as an
estimated guideline or comparative measure regarding annual performance returns averaged over a time horizon. They reflect a guideline which the Manager considers
reasonable having considered the current industry and interest rate environment as well as quantitative and qualitative analyses. There can be no assurance that the
targeted returns will be met over any particular time horizon. If one or more of the assumptions used in the formulation of the targeted returns turns out to be incorrect,
the target may not be achieved. Targeted returns do not take into account unanticipated material changes in the market and/or other economic conditions affecting the
investments, transaction costs that may arise, the imposition of taxes and the actual sale or trade of investments. Targeted returns should not be relied upon.
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Industry Award Recognition for the PineBridge Global Dynamic Asset Allocation Strategy1
Institutional Investor
U.S. Investment Manager
Award within the Balanced/
Global Tactical Asset
Allocation category
Global Investor Investment
Excellence Award —
Global Multi-Asset Manager
of the Year
For more information on our multi-asset capabilities, please visit www.pinebridge.com.
Institutional Investor U.S. Investment Management award methodology: a short-list of top performing managers were identified by Institutional Investor’s editorial
and research teams in consultation with eVestment’s research team. Analysis factors included 1-, 3- and 5-year performance, Sharpe ratio, information ratio, standard
deviation and upside market capture, the same factors used by institutional investors in their own manager searches. More than 1000 leading U.S. pension plans,
foundations, endowments and other institutional investors are surveyed and asked to vote for up to three of the top performing managers in each strategy in which
they invested during the past year. Global Investor Award: http://www.pinebridge.com/pdfs/press-release-global-investor-award.pdf.
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PINEBRIDGE INVESTMENTS
PineBridge Global Dynamic Asset Allocation is Solving for Targeted Needs
Below, we explore a few of the ways the PineBridge Global Dynamic Asset Allocation Strategy has been utilized by
investors seeking to address a specific challenge through a multi-asset solution.
Client Seeking To
Managing Objectives Through the PineBridge
Global Dynamic Asset Allocation Strategy
Increase the return and Sharpe ratio of the returnseeking side of an LDI program
Target equity-like returns with lower volatility, which can be
used to enhance returns, reduce risk and accelerate a path
to full funding
Achieve absolute return objective of CPI + 5% with managed risk
as a complement within a strategic asset allocation framework
Apply dynamic currency hedging to meet return objective,
with half the volatility (8-10%)
Access a growth-oriented strategy using dynamic risk management
Employ full hedging to local currency, targeting LIBOR + 5%
over rolling 5-year period
Incorporate liquid alternatives, within a traditional fixed income
and equity portfolio, with an absolute return objective
Allocate up to 15% in liquid alternatives, enabling diversified
exposure to less correlated asset classes
The PineBridge Approach: Seeking Absolute Return by Managing Risk & Return
We believe the singular focus on risk is a risk in itself, and that managers who focus equally on where the returns will be,
and where they will evolve, will be positioned to benefit from changing markets.
While the crisis elevated the importance of risk
management and restored opportunism within asset
allocation, PineBridge Investments’ Global Multi-Asset
team has been an innovator in multi-asset, having
managed a global dynamic strategy for more than a
decade. We recognize that the outlook for fundamentals
and the risk/return opportunity set is always evolving,
and as a result, our portfolios dynamically adjust to seek
growth opportunities in a world where we believe the
biggest risk will be a lack of return.
Today’s outcome-oriented solutions are typically multiasset class strategies with absolute return targets, along
with a risk management component. These strategies
are not created equal, however with some focused on risk
over returns, versus those who seek returns with a riskconscious approach. We believe risk and return should
be equal partners: two sides of the same coin. We view
our approach as risk-aware, yet not solely risk-driven.
We manage our strategy through a forward-looking
fundamental process, which focuses on where returns
are being created, and risks are rising.
Transparency is important for investors in today’s
environment. The ability to look behind the curtain to
understand the mechanics of a dynamic strategy is key.
As we construct our portfolios, we draw on the expertise
of diverse on-the-ground teams within fixed income,
equity, currencies and alternatives, with the goal of
creating an optimal blend of assets wherein fundamentals
will strengthen over an intermediate term of 9-18 months.
These views are anchored through our 5 year forward–
looking view of fundamentals through our Capital Market
Line, and distilled to an intermediate-term view through
our monthly set of meetings, leveraging more than 220
investment professionals across PineBridge Investments.
We believe our global presence and optimal size offer a
distinct advantage, allowing us to nimbly yet thoughtfully
share and debate information to make proactive decisions,
rather than reactive corrections—helping us position for
bigger opportunities while mitigating significant risks
through an active, dynamic approach.
EXPLORING MULTI-ASSET SOLUTIONS
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About
PineBridge
PineBridge Investments provides investment solutions that span the full spectrum of asset classes and
geographies around the globe. We manage more than US $75 billion in assets, and more than US $13 billion
in multi-asset investments. Our investment professionals focus on delivering compelling results for our
clients, and the global interconnectivity among our teams allow us to remain at the forefront of opportunity.
Investments
MULTI-ASSET | FIXED INCOME | EQUITIES | ALTERNATIVES
This information is for educational purposes only and is not intended to serve
as investment advice. This is not an offer to sell or solicitation of an offer to
purchase any investment product or security. Any opinions provided should not
be relied upon for investment decisions. Any opinions, projections, forecasts and
forward-looking statements are speculative in nature; valid only as of the date
hereof and are subject to change. PineBridge Investments is not soliciting or
recommending any action based on this information. There can be no assurance
that any particular strategy will deliver the benefits sought or that any particular
investment will be successful. Past performance is not indicative of future
results. Diversification does not ensure against loss.
Disclosure Statement
PineBridge Investments is a group of international companies that provides
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Opinions are the personal views of the authors and do not necessarily reflect
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do not necessarily reflect the opinions of any other investment professional
at PineBridge Investments, and may not be reflected in the strategies and
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Last updated 16 June 2014.
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