Hello, dear friend, you can consult us at any timeif you have any questions, add WeChat: daixieit

This team assignment involves creating a strategic asset allocation for a pension fund by analyzing the pension fund’ goals and current portfolio and applying quantitative tools to come up with a new proposed strategic asset allocation. You should work on the assignment in a team of four or five students (that you form yourself) all of whom must be from the same section of the class. The grade on the assignment is based on a write-up that the team submits on Canvas. Each team member will also need to submit an evaluation of the contribution of all team members to working on the assignments (both effort and dependability). Team members who receive low contribution scores will incur a substantial grade penalty on the assignment.

The due date of this assignment is March 23 and you must submit it by 11:00am on the due date. While assignments may be submitted before the due date, late assignments will not be accepted (because we will discuss the assignment in class the same day).

You can discuss aspects of the assignments only with your fellow team members. Discussing the details of assignments with other individuals (students not in your team or non-students) is not permitted. Consulting answers to the assignments that were not produced by your team is forbidden. You are allowed to put your name on a team write-up only if you have made a substantial contribution to the work. When you turn in an assignment, you are certifying that you understand the answers that your team submitted. I will not hand out written answers to the assignments. The answers to questions and the different facets of each assignment are discussed in class, and you are expected to be present and participate in the discussion. AI policy: You are allowed to use a Large Language Model in working on all facets of the assignment.

The two CSV files with the capital market assumptions that you should use for the assignment can be found on Canvas. Look for the “Assignment 3: Strategic Asset Allocation” folder under the “Assignments” section. The files’ names are SAAersd and SAAcorrelations. The first file contains estimates of annual (arithmetic) expected returns and annual standard deviations and the second file contains estimates of annual correlations.

You apply for an internship with the investment office of the New York State Common Retirement Fund (CRF). You pass the first interview and receive an assignment from CRF that you need to complete successfully to move to the last stage of interviews. The assignment you receive is to help analyze and critically evaluate CRF’s strategic asset allocation.

You can find information about the New York State CRF in the following link: https://www.osc.ny.gov/common-retirement-fund. 

Specifically, you can find on their webpage their financial reports as well as their investment philosophy (see https://www.osc.ny.gov/common-retirement-fund/funds-mission-values-and investment-philosophy). Make sure you read and think about their investment philosophy! Their long-term policy asset allocations can be found on this page: https://www.osc.ny.gov/common-retirement-fund/resources/financial-reporting-and-asset-allocation.

Information about their current asset class allocations holdings and their expected return aspiration is mentioned in their most recent news release: https://www.osc.ny.gov/press/releases/2026/02/dinapoli-state-pension-fund-valued-297-point-8-billion-end-third-quarter.

Note: It is your choice whether to work with the February 2026 numbers to represent the current allocations or to work with the number as of March 2025 (which is the date of their most recent annual report). The numbers in the news release give you less information about the specific weights of each asset class, while the numbers in the annual report (on page 114) give you all the specific weights.

A technical note: When you go over the material that CRF releases, you will find that their fund’s long-term expected rate of return as well as the actuarial discount rate used for the pension liabilities is 5.9%. This is a nominal rate (i.e., it already includes inflation, which CRF assumes to be 2.9%). A “long-term” rate of return or a discount rate is most often quoted as a geometric mean. In contrast, the expected returns that CRF provides in their annual report for the different asset classes and that we use for the capital market assumptions are arithmetic means. These arithmetic means are the correct inputs for a portfolio frontier analysis and Monte Carlo simulations. The approximate relation between them is: Geometric mean = Arithmetic mean - (0.5 * Variance). In words, the geometric mean is equal to the arithmetic mean minus half of the variance (where the variance is the standard deviation squared). Therefore, the geometric mean is always below the arithmetic mean (as we discussed in class in the context of the Cook County Pension Fund case, this is due to the volatility drag).

How is that affecting your analysis? For the portfolio frontier exercise you conduct for CRF you will use the provided capital market assumptions directly. If you choose to conduct any Monte Carlo simulations, this is also what you will use for the simulations. When you recommend a particular portfolio on the frontier, the portfolio will have an expected return and standard deviation. Use the formula above to convert your expected return and standard deviation to a geometric mean estimate, which you will then be able to compare with CRF’s 5.9% discount rate.

Writing the Assignment

Each team should submit one copy of the write-up, with the team number (from Canvas) and the names of all team members clearly marked on a separate cover page. Please upload your write-up to Canvas by March 23 at 11:00am. The write-up can be submitted as a Word file or a PDF file. Do not submit an Excel file. While you can work in Excel to perform the analysis, the tables and figures should be incorporated into the write-up (i.e., you are submitting only one file). 

Tips for writing the assignment:

2. We already had two assignments in class that are related to strategic asset allocation and we discussed them in class. We talked about many useful aspects of the process both in the class sessions when we studied the material and in the case discussions. Make sure that your answers below use the insights we discussed in class. We will be grading not necessarily based on whether the answers “sound reasonable” but whether they address important issues that we discussed in class.

You should submit your answers to the following four questions.

Without considering their existing policy asset allocation targets or their actual asset class weights, please discuss

b. Analyze CRF’s long-term policy asset allocation targets that you find in their documents as well as their current asset allocation. Discuss how they fit with the goals you have identified above in 1.a with respect to their expected return and risk, their liquidity attributes, their sensitivity to inflationary pressures, the effort required in terms of identifying asset managers in the various asset classes, and the feasibility and time frame in which such allocations can be changed.

2. Efficient Frontier.

As part of your CRF assignment, you are asked to perform an efficient frontier analysis for the pension fund and recommend a new strategic asset allocation for CRF. Assume that your recommendation will be implemented over a period of one to two years.

(a) You need to impose appropriate constraints on the quadratic optimization that produces the frontier. The constraints should be based on the goals and attributes you identified in question 1.a, your general understanding and views of the asset classes, and your analysis of the feasibility of changing the current actual allocations of CRF in a timeframe of 1-2 years. Impose only the necessary constraints (only those that are binding for some expected return levels). There is no need to impose upper and lower bounds on all asset classes. Rather, identify only the relevant constraints that will produce the best strategic asset allocation for CRF. For each constraint, provide an explanation of why you are imposing it and what impact it has on the efficient frontier.

(b) Use the provided capital market assumptions (in files SAAersd and SAAcorrelations) and the constraints you identified in part (a) to perform quadratic optimization and construct an efficient frontier for CRF. Provide both a table (with expected returns, standard deviations, and asset class weights) and a figure with the restricted frontier 4 you have constructed for CRF for expected returns in the range of 5% to 10% (in 0.25% increments). It is fine if your constraints mean that some of the expected returns in the table cannot be achieved.

(c) Discuss how you generated the frontier (e.g., using Excel, programming yourself, or utilizing an LLM). Discuss what verification strategies you have used to ensure that your results are correct. If you have utilized an LLM, provide the prompt.

3. Your recommendation to CRF.

a. Recommend to CRF a specific portfolio on the restricted efficient frontier (i.e., specify the expected return, standard deviation, and allocations to the different asset classes), and provide the reasoning for your recommendation.

Note 1: Remember, you want to impress CRF’s staff! Consider providing additional analysis that describes how your recommended portfolio will behave over the next 30 years compared with their existing policy target allocations. We are not looking for an analysis of payouts and contributions like you did for the Cook County case (CRF’s situation is very different from that of the Cook County Pension Fund). The analysis you provide should be geared towards supplying useful information that may be of interest to CRF when making a decision on whether to adopt your proposed portfolio or remain with the existing targets.

Note 2: When recommending a strategic asset allocation, you need to be able to defend its feasibility and desirability for CRF. Does the portfolio satisfy the goals you have identified in Question 1? Is it a realistic portfolio for CRF? Is transition to this new proposed allocation feasible in the 1-2 years horizon? This may require going back and forth between questions 1, 2, and 3 while imposing various constraints and understanding their impact on the portfolio.

b. If you chose to generate additional quantitative analysis, discuss how you generated it (e.g., using Excel, programming yourself, or utilizing an LLM). Discuss what verification strategies you have used to ensure that your results are correct. If you have utilized an LLM, provide the prompt.

4. Your own portfolio.

Use the same capital market assumptions from the two files to perform strategic asset allocation for your own portfolio.

a. How would your constraints be different from those you have used for CRF and why? Specify the constraints you would impose on the optimization to perform strategic asset allocation analysis for your own personal portfolio and provide the reasoning behind each constraint. Make sure that your reasoning reflects the important issues we discussed in class.

b. Perform an efficient frontier analysis with the constraints you have identified in (a) for expected return from 5% to 10% (in 0.25% increments), and provide the results in a table. It is fine if your constraints mean that some of the expected returns in the table cannot be achieved.