BD-01 — Investment Strategy & Allocation

Office: Front.

Maturity: Provisional · 14 Service Domains spanning the firm’s allocation paradigms — asset-only, total-portfolio, liability-relative, insurance, and goals-based — plus the goals-based-planning strategy capability that frames the goal hierarchy

The Business Domain that decides what the firm invests in, and why — the front-office capability above the selection of any individual security, manager or asset. It is where the institution’s investment beliefs become a mandate, the mandate becomes a long-horizon allocation, and the allocation is adjusted as the world changes. Everything BD-02 to BD-06 does — selecting securities, choosing managers, sourcing deals, constructing and trading the portfolio — is the execution of decisions framed here.

The decomposition is grounded against external industry references — notably the CFA Institute portfolio-management process and its three approaches to asset allocation — using the institution-archetype balance review. Each Service Domain below is its own file: the definition, its Service Operations, the entities it consumes and produces, the external standards it conforms to.

Service Domains

SD-01.1 to SD-01.5 are the common spine — every buy-side institution forms beliefs, defines a mandate, holds a capital-market view, sets a long-horizon allocation, and adjusts it. SD-01.6 to SD-01.14 are archetype-activated expressions of allocation, funding strategy and goals-based planning.

Archetype activation

BD-01 is the Business Domain where institution type matters most, because the unit of allocation differs by archetype. The model is the union; an implementation activates its subset.

The common spine (SD-01.1–01.5) is activated by every archetype — the difference is the consumer of its output: a self-consumed policy for an asset owner, a product or model portfolio for a manager, a pod universe for a hedge fund.

Wider-source grounding

The decomposition is grounded against external industry references:

• The CFA Institute portfolio-management process — the planning → execution → feedback loop, the Investment Policy Statement, and the three approaches to asset allocation (asset-only, liability-relative, goals-based). BD-01 is the planning half of that loop; the execution half (portfolio construction, rebalancing, overlay) is BD-05.
• The EFAMA / Investment Association value-chain framings, which place investment-product strategy adjacent to — not inside — investment management.
• Consultancy operating-model frameworks and the major vendor capability maps (Aladdin, SimCorp One, Charles River, eFront), at the front-office strategy layer.
• The buy-side institution-archetype panel, per the institution-archetype balance reviewer.

Non-overlap — where the boundaries run

Service Domains are non-overlapping by construction. The boundaries inside and around BD-01 worth stating, because the topics look adjacent:

• SD-01.1 Beliefs vs SD-01.2 Mandate. SD-01.1 owns the firm’s durable, firm-wide stance — its view on market efficiency, the illiquidity premium, active versus passive, the time-horizon advantage. SD-01.2 owns the governing mandate of a specific pool of capital — the objectives, risk appetite and constraints a portfolio or fund is run to. Beliefs are one per firm and change rarely; mandates are one per pool of capital and are amended as circumstances change. SD-01.1 shapes how SD-01.2 is written; it is not the same artefact.
• SD-01.4 Strategic vs SD-01.5 Tactical & Dynamic. A time-horizon and governance split, not an asset-class one. SD-01.4 sets the long-horizon baseline allocation — a deliberate, periodic, governance-gated decision. SD-01.5 manages deviations from that baseline within policy ranges — shorter-horizon, signal-driven, exercised under delegated discretion. SD-01.4 sets the policy; SD-01.5 deviates from it.
• SD-01.4 Strategic Asset Allocation vs SD-01.6 Total Portfolio Approach. Two distinct operating models for the same decision area, not a lifecycle split — an institution activates one, or runs a hybrid. SD-01.4 allocates across asset-class budgets against a policy benchmark. SD-01.6 rejects asset-class budgets in favour of a single factor-and-risk budget for the whole fund, in which every investment competes for capital against a passive reference portfolio on risk-adjusted terms. An asset owner that adopts the Total Portfolio Approach exercises SD-01.6 in place of SD-01.4; one that runs a conventional policy portfolio exercises SD-01.4 and leaves SD-01.6 dormant.
• The three allocation paradigms — SD-01.4 / SD-01.7–01.8 / SD-01.13. The CFA body of knowledge names three co-equal approaches to asset allocation, and OpenIM gives each its own Service Domain. SD-01.4 carries asset-only — efficient asset-class mixes for a single pool of capital. SD-01.7 (DB pension) and SD-01.8 (insurer) carry the liability-relative approach — where a contractual liability, or for the insurer a regulatory capital constraint and a book-yield objective, change the problem. SD-01.13 carries the goals-based approach for the wealth manager — per-goal sub-portfolios assembled bottom-up. An institution activates the allocation domain matching its objective; they are not exercised together on the same pool of capital.
• SD-01.4 Strategic Asset Allocation vs SD-01.13 Goals-Based Allocation. Two distinct allocation paradigms for the long-horizon allocation decision, not a lifecycle split — an institution activates one or the other, the same alternative-operating-model relationship SD-01.6 has to SD-01.4. SD-01.4 optimises a single pool of capital top-down against one objective and one policy benchmark. SD-01.13 partitions the client’s wealth into per-goal sub-portfolios, each with its own horizon, required probability of success and allocation, assembled bottom-up; there is no single policy benchmark. A wealth manager exercises SD-01.13 in place of SD-01.4.
• SD-01.13 Goals-Based Allocation vs SD-01.14 Goals-Based Planning vs SD-15.15 Financial & Wealth Planning (cross-Business-Domain). Three Service Domains, three roles on the goals-based loop: SD-01.14 frames the client’s goal hierarchy as a strategy artefact — elicits, prioritises, maintains the goals and tracks funding adequacy. SD-01.13 allocates to meet them — translates the goal hierarchy into the per-goal target allocations. SD-15.15 wraps the advisory delivery around the hierarchy — the comprehensive financial plan, the estate and wealth-transfer strategy, behavioural advice, family governance. SD-01.14 frames the goals as strategy; SD-01.13 allocates to them; SD-15.15 advises around them.
• SD-01.4 / SD-01.5 / SD-01.9 — allocation of capital vs allocation of risk. SD-01.4 and SD-01.5 allocate capital across asset classes. SD-01.9 allocates a risk budget across strategies, pods and portfolio managers — a different unit, a different cadence (continuous, performance-reactive), and an allocation to teams, not asset classes. A hedge-fund platform exercises SD-01.9; its single asset-class exposures still pass through SD-01.4/01.5 thinking, but the binding decision is the risk budget.
• SD-01.3 House View vs BD-02 Securities Research. SD-01.3 produces top-down macro, capital-market and asset-class research — the house view that allocation consumes. BD-02 Securities Research & Selection produces bottom-up, security-level research. SD-01.3 informs which asset classes to favour; BD-02 informs which securities to hold.
• SD-01.10 Commitment Pacing vs SD-09.7 Private-Markets Cash-Flow Forecasting (cross-Business-Domain). SD-09.7 is the cash-flow forecasting engine — it projects calls, distributions, NAV and the J-curve. SD-01.10 is the decision — how much new capital to commit, to what, and when. SD-01.10 consumes the SD-09.7 forecast; it does not duplicate it.
• SD-01.10 Commitment Pacing vs BD-03 Manager & Fund Investment and BD-04 Direct & Co-Investment (cross-Business-Domain). SD-01.10 sets the envelope — how much capital to commit to illiquid strategies per vintage, by strategy. BD-03 and BD-04 fill the envelope: BD-03 selects the external managers and funds and executes the fund commitments (SD-03.5 consumes the SD-01.10 pacing budget); BD-04 originates and executes the individual direct and co-investment deals within the same budget. SD-01.10 sets the size; BD-03 and BD-04 spend it on their respective routes. Mirrors the BD-03 README’s BD-03-vs-SD-01.10 statement and the BD-04 README’s BD-04-vs-SD-01.10 statement.
• SD-01.11 Liquidity Strategy vs SD-07.3 / SD-05.6 / SD-11.2 (cross-Business-Domain). The boundary runs by artefact, so the per-holding liquidity classification has one producer. SD-01.11 owns the tier taxonomy and placement rules — the buckets, the placement rules, the buffer and the liquid-to-illiquid linking policy (governed as Classification Type & Value, E-11). SD-07.3 Liquidity Risk Management produces the per-holding liquidity classification — it applies the SD-01.11 taxonomy to assign every holding a tier, and records the result as Risk Measurement (E-19, risk_type = liquidity); it also measures liquidity risk. SD-05.6 Liquidity-Aware Portfolio Management and SD-11.2 Liquidity Management consume the classification — SD-05.6 to manage the portfolio’s liquidity profile, SD-11.2 to fund near-term needs against the tiers. SD-01.11 sets the policy; SD-07.3 produces the classification; SD-05.6 and SD-11.2 consume it.
• SD-01.2 Mandate Definition vs SD-16.1 Corporate & Fund Governance (cross-Business-Domain). SD-01.2 owns the content of the investment mandate. SD-16.1 operates the decision bodies — the board and investment committee that approve it. SD-01.2 drafts the mandate; SD-16.1 governs its approval.
• SD-01.12 Funding & Spending Policy vs SD-01.2 Mandate Definition. SD-01.2 codifies what a pool of capital is run to — objectives, risk appetite, constraints — at a point in time. SD-01.12 governs how much capital flows in and out, and on what governed rule — the contribution policy and funding strategy, the spending or withdrawal rule, and the sponsor relationship that sets them. The funding level and spending rule SD-01.12 produces are inputs to the allocation SD-01.4 sets and the liquidity strategy SD-01.11 designs. SD-01.12 is asset-owner-activated and has no asset-manager analogue — a manager never funds itself or sets its own spending rule.
• SD-01.12 Funding & Spending Policy vs SD-16.2 Owner & Investor Reporting (cross-Business-Domain). SD-01.12 manages the funding and spending policy the sponsor relationship is built on. SD-16.2 reports outcomes to that owner or sponsor. One governs the inflow/outflow policy; the other accounts for results to the party the policy answers to.
• BD-01 vs BD-05 Portfolio Management. BD-01 is the planning half of the CFA process loop — it decides the allocation. BD-05 is the execution and feedback half — portfolio construction (SD-05.1), rebalancing (SD-05.3), overlay and hedging (SD-05.4), model-portfolio maintenance (SD-05.7). For an asset manager, SD-01.4/01.5 are exercised to design a multi-asset product or a model portfolio; BD-05 then builds and maintains it. Allocation strategy is BD-01; its implementation in a live portfolio is BD-05.

Design notes

• Fourteen Service Domains, because institution type is real. The fourteen split a common spine (SD-01.1–01.5) from archetype-activated expressions (SD-01.6–01.14). The asymmetry — nine expression domains, unevenly activated — is justified per criterion A7 of the institution-archetype reviewer: each expression domain is a genuinely distinct capability with no equivalent in the other paradigms (a liability hedge has no asset-owner analogue; a risk budget has no insurer analogue; goals-based planning has no asset-only-WM analogue), not a finer slice of a shared one.
• SD-01.12 Funding & Spending Policy Management carries the asset owner’s own signature capability — the contribution policy, spending or withdrawal rule, and sponsor relationship. It is an archetype-activated expression alongside SD-01.6–01.11, asset-owner-activated.
• Two WM sub-cases — goals-based and asset-only-model-portfolio. The wealth-manager archetype carries two distinct allocation-paradigm sub-cases, both real and both addressed by the model. The goals-based WM activates SD-01.13 (per-goal sub-portfolios assembled bottom-up) and SD-01.14 (the framing of the goal hierarchy SD-01.13 allocates against) and leaves SD-01.4 dormant; the asset-only-model-portfolio WM (Vanguard Personal Advisor Services, Schwab Intelligent Portfolios, Morgan Stanley Choice and equivalents) activates SD-01.4 as its allocation paradigm — efficient asset-class mixes packaged as a finite set of model portfolios — and leaves both SD-01.13 and SD-01.14 dormant. The two sub-cases are co-equal expressions of the WM archetype, matching SD-01.13’s own file’s statement that asset-only and goals-based are co-equal allocation paradigms for the wealth manager.
• SD-01.13 Goals-Based Allocation and SD-01.14 Goals-Based Planning, and SD-01.2’s inbound-delegated operation for the OCIO. Goals-based allocation — the wealth manager’s defining allocation paradigm — has its own archetype-activated Service Domain (SD-01.13), matching the design rule that non-asset-only paradigms get their own SD; SD-01.4 is cleanly the asset-only SD. SD-01.14 carries the framing of the goal hierarchy as a strategy artefact — a separate capability from the allocation, on the same strategy / advisory split SD-01.7 / SD-15.15 sit across. The OCIO / fiduciary manager is a mandate-origin pattern, not a separate capability set — it operates the BD-01 subset of its asset-owner client under a delegated discretionary mandate, codified by an inbound-delegated operation in SD-01.2; no OCIO-specific Service Domain is created, because the OCIO exercises existing Service Domains under a delegation contract.
• DB pension and insurer get separate Service Domains. SD-01.7 and SD-01.8 are both liability-relative, but the insurer’s regulatory-capital constraint (Solvency II SCR, risk-based capital), its ring-fenced matching-adjustment portfolio, and its book-yield objective change the problem enough that collapsing them would force one domain to read in two paradigms.
• The de-risking glidepath is an operation, not a Service Domain. The funded-status-triggered de-risking path and the endgame (self-sufficiency, buyout) are Service Operations within SD-01.7, not a separate domain — they are how a liability-driven strategy evolves over time, inseparable from the capability that sets it.
• BD-01 owns few entities. It is a strategy and decision domain: it consumes the reference, market-data and book-of-record entities and produces allocation decisions and plans as analytical artefacts. It owns the mandate facet of E-03 Portfolio / Mandate.
• Two capabilities are out of scope of BD-01 — they belong to BD-15. Investment product strategy and development — deciding which funds and strategies a manager offers — is placed by every external framework adjacent to, not inside, investment strategy; it is owned by BD-15 Distribution, Product & Client Management (the product cluster, SD-15.1–15.3). Inbound client-mandate handling — RFP and DDQ response, IMA negotiation, client onboarding — is BD-15’s distribution and client clusters. SD-01.2 covers the codification of a mandate once received; the commercial process of winning and onboarding it is BD-15, not BD-01.

How BD-01 relates to the rest of the model

• Consumes the reference and market-data entities — Asset Class (E-09), Benchmark / Index (E-10), Price & Market Data (E-08) — the book-of-record entities for the current portfolio it allocates from — Holding / Position (E-04, book = ibor for live allocation and pacing, book = abor for funded-status), Valuation (E-07, any method), Portfolio / Mandate (E-03) — the risk entities that carry constraints and exposures — Risk Limit (E-16), Risk Measurement (E-19, any risk_type) — and, for commitment pacing, the private-markets fund entities — LP Commitment (PM-06), Capital Call (PM-07), Distribution (PM-08), Fund Investment (PM-09).
• Owns the mandate facet of Portfolio / Mandate (E-03), authored by SD-01.2; Liability Profile (E-27), co-owned by SD-01.7 (the pension-scheme view) and SD-01.8 (the insurance-book view) as the actuarially-projected liability the strategy is built against; Risk Budget (E-28, SD-01.9), the risk allowance allocated to a strategy, pod or manager; Allocation Plan (E-29), key-partitioned by plan_type across SD-01.4 (strategic), SD-01.6 (reference_portfolio) and SD-01.10 (commitment_pacing) so a decision traces to the plan version in force when it was taken; and Goal (E-30, SD-01.14), the client’s investment objective the goals-based paradigm allocates against. House views, hedge targets and per-goal target allocations remain analytical artefacts, not master entities.
• Feeds the rest of the front office — BD-02 to BD-06 select, construct and trade within the allocation BD-01 sets — the middle office (BD-07 Investment Risk monitors against the risk appetite SD-01.2 sets and the budgets SD-01.6/01.9 allocate; BD-09 Performance & Analytics measures return against the policy and reference benchmarks BD-01 defines, and SD-09.7 feeds the SD-01.10 pacing decision), the treasury domains (BD-11, which funds the liquidity SD-01.11 plans), and governance and owner reporting (BD-16).