Asset Allocation
Asset allocation is the distribution of capital across asset classes to balance return goals, risk, liquidity, and time horizon.
Allocator relevance: The core portfolio decision framework that drives long-term outcomes more than manager selection alone.
Expanded Definition
Asset allocation defines exposure across public equities, fixed income, private equity, private credit, real assets, and other sleeves. In allocator environments, the allocation framework is typically constrained by liquidity needs, drawdown tolerance, spending requirements, and governance cadence.
In private markets, allocation is not just a target percentage—it includes pacing, vintage diversification, and liquidity management to avoid unintended overexposure.
How It Works in Practice
Allocators set target weights and rebalance via liquid adjustments and private commitment pacing. The practical challenge is that privates “move” through commitments, drawdowns, distributions, and valuation changes rather than daily trading.
Decision Authority and Governance
Investment Policy Statements (IPS), IC processes, and risk budgets define guardrails. Clear decision chains prevent allocation drift driven by headlines or short-term performance chasing.
Common Misconceptions
- Allocation is static once set.
- Diversification always reduces risk.
- Private market allocation can be controlled like public markets.
Key Takeaways
- Allocation is a governance process, not a one-time decision.
- Commitment pacing is central for private allocations.
- Liquidity constraints define what is feasible.