Building and Maintaining a Desired Exposure to Private Markets
This paper describes and simulates a simple commitment pacing plan that is generic, flexible and can be tailored to meet many situations.
For the last 20y, the correlation between stock and bond returns has been negative, enabling CIOs to increase stock allocations, with bonds acting as a hedge, while still satisfying a given risk budget. However, stock-bond correlation is not immutable. The correlation was persistently positive from the late-1960s until the late-1990s, after having been negative in the 15y before that (Figure 1). A shift to positive stock-bond correlation affects the tradeoff between portfolio expected return and risk, likely altering a CIO’s asset allocation decision. What could lead to such a shift in stock-bond correlation?