Why Pension Funds Should Favour Rule-Based Strategies over Discretionary Ones

Brinson, Hood, and Beebower’s (1986) conclusion that more than 90% of the average time-variation in returns is explained by strategic asset allocation has led to widespread recognition of the importance of asset allocation to investment returns and thus to pension fund performance.

Since their study, asset management (AM) and asset and liability management (ALM) practices have undergone marked changes, as many institutions now allocate signifi cant shares of their portfolios to alternative assets such as listed and unlisted real estate, commodities, infrastructure, hedge funds.