Executive Summary
The point of this paper is not to be exhaustive in the questions posed. It is, rather, to suggest a way for investors to look at asset classes and related strategies and make reasonable conclusions about what kind of long-term returns to expect from them. Hopefully, the examples we provide span a broad enough spectrum of assets that it is reasonably clear how to do this analysis for all of the asset classes in a typical institutional investor’s portfolio. Equipped with a strong anchor for their investing beliefs, CIOs can better analyze the new ideas that come across their desks. They can also do a better job of defending the truly good ideas in their portfolios against investment committee members and other constituents who will argue that a given idea “just isn’t working” and should be scrapped. Furthermore, they can understand some of the circumstances that should cause them to consider rethinking an idea that is no longer likely to prove useful. This level of analysis is not capable of great precision in forecasting future asset class returns. But for many purposes, determining whether an asset class is likely to give a return premium is more important than estimating exactly what that premium will be.
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