SD-01.4 — Strategic Asset Allocation

Business Domain: BD-01 Investment Strategy & Allocation (Front office) · Applies: BOTH

Purpose

Sets the long-horizon target allocation of a pool of capital — the deliberate, periodic, governance-gated decision on how capital is deployed across asset classes to meet the mandate’s objectives within its risk appetite. It is the planning-step allocation of the portfolio-management process. Strategic Asset Allocation carries the asset-only approach — efficient asset-class mixes optimised against capital-market assumptions for a single pool of capital run against one objective and one policy benchmark. It is one of the three approaches the CFA body of knowledge names; the other two have their own Service Domains, because each changes the problem enough to warrant one: the liability-relative approach is SD-01.7 for a defined-benefit pension and SD-01.8 for an insurer, and the goals-based approach is SD-01.13 Goals-Based Allocation for the wealth manager. An implementation activates the allocation Service Domain matching its objective; SD-01.4 and SD-01.13 are alternatives, not exercised together on the same pool of capital.

Service Operations

Optimise the strategic allocation — efficient-frontier and portfolio-optimisation modelling to set long-horizon target weights across asset classes, against the mandate’s objective and the capital-market assumptions.
Conduct the asset-allocation study — model outcomes over the mandate horizon, including simulation and scenario stress on the candidate allocation.
Set the policy benchmark — define the passive policy portfolio that encodes the strategic allocation.
Set rebalancing ranges and policy bands — the tolerance corridors around each target weight within which tactical positioning and drift are permitted.
Govern the strategic-allocation review cycle — the periodic re-adoption of the strategic allocation by the governing body.

Inputs and outputs

Inputs: the governing mandate (SD-01.2); long-horizon capital-market assumptions (SD-01.3); the spending or funding profile of the capital.
Outputs: the long-horizon target allocation, the policy benchmark and the policy bands — consumed by SD-01.5 (which deviates from them), by BD-05 Portfolio Management (which constructs to them), and by BD-09 Performance & Analytics (which measures return against the policy benchmark).

Entities

Consumes: Asset Class (E-09), Benchmark / Index (E-10), Portfolio / Mandate (E-03); the SD-01.2 governing mandate; the SD-01.3 long-horizon capital-market assumptions.
Owns: E-29 Allocation Plan for the plan_type = strategic partition — the versioned strategic allocation and its policy bands, so a decision traces to the allocation in force when it was taken. E-29 is key-partitioned and co-equal: SD-01.4 owns the strategic partition, SD-01.6 Total Portfolio Approach the reference_portfolio partition, SD-01.10 Commitment Pacing the commitment_pacing partition; it is one shared plan master. The policy benchmark itself is reference data administered by SD-09.4 Benchmark Management — SD-01.4 defines which benchmark encodes the policy; SD-09.4 holds and maintains it.

Standards

The CFA Institute treatment of strategic asset allocation and the asset-only approach. Capital-market-assumption frameworks supply the inputs; no single external standard governs the optimisation itself.

Open extensions

The boundary with SD-09.4 Benchmark Management on the policy benchmark.
The drift model on E-29 — measuring a portfolio’s position against the policy bands of the strategic plan in force.