Building Balanced Portfolios for the Long Run

We are witnessing the rise of private assets to the core of many asset allocations from a peripheral “alternative,” and we have entered a new period of heightened macro uncertainty. Both could require a fundamental evolution of the asset-allocation process.

In this paper, MSCI and GIC introduce an asset-allocation framework to help investors navigate this new reality. We start by moving away from short-term, backward-looking measures of risk to tools for understanding the macro risks that could dominate the coming decades, and how they may play into asset returns over long horizons. Some of these macro risks — including supply-driven inflation, a less-credible central bank, rising real rates and slowing productivity growth — were modest risks in recent decades but could significantly change the trajectory of the markets in the years ahead.