The “New Classic” Equity Allocation? A Discussion on the Implementation of the Global Equity Allocation and Evolving Mandate Structures

Abstract

The recent financial crisis led many institutional investors to review their asset allocation policies and explore alternative approaches to implementation. MSCI recently held discussions around the world with major pension plans, asset managers, and investment consultants to understand different approaches to implementing equity allocation. Following these consultations, the authors provide a framework for the implementation of global equity allocation. Our research suggests that global equity mandates, together with dedicated emerging market mandates and small-cap mandates, may be emerging as the “new classic” structure for implementing equity allocation. Investors who need to maintain a home bias can manage the domestic portfolio separately. Such a top-down mandate structure not only accrues benefits from the potential merits of an integrated global investment process, but accommodates segment-specific considerations on manager selection, legacy or mandatory home bias, and different risk and return drivers in various equity market segments.