Asset Allocation for “End-State” Portfolios

Institutional Advisory & Solutions

September 2019

In recent years, many U.S. corporate pension plans have closed and entered their “end-state.” CIOs managing these end-state portfolios must navigate a specific set of investment challenges and evaluate the potential impact of keeping illiquid private assets in their portfolios.

PGIM’s Institutional Advisory & Solutions (IAS) team uses its asset allocation framework (OASIS™) to help end-state plans solve for optimal asset allocations. The team’s research illustrates how CIOs can incorporate private assets to achieve return objectives while also meeting liquidity and funded status stability constraints. The OASIS framework may be used to help CIOs measure the tradeoff between portfolio performance and investor constraints, helping to make more informed decisions.
In this research paper, IAS presents new findings that investors may use to help manage end-state portfolios and discusses:
The impact of mortality uncertainty on portfolio asset allocation;
How investor constraints and views on private asset performance may affect their asset allocation; and
The usefulness of portfolio analytics that incorporate key characteristics of private assets (e.g., uncertain cash flows and high and lumpy transaction costs).