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Multi Asset Class Investment Strategy


The multi asset class Yale Model has long been hailed in the US as representing the very best that portfolio theory has to offer, placing Yale consistently in the top percentile for investment performance. Yet it has not been widely adopted, and outside the US remains largely unrecognised.

Multi Asset Class Investment Strategy shows how unthinking mistrust of so-called ‘alternative’ assets, and an inability validly to compare results across asset classes on any traditional risk-adjusted basis, has led to institutional investors, particularly pension funds, missing out on the out-performance which a multi asset class approach can offer.

Guy Fraser-Sampson demonstrates how the returns of different assets classes (hedge funds, private equity, property, etc) may validly be compared with those of quoted equity markets. He argues for an adoption of MAC investing (his own multi asset class investment model), and demonstrates how this can improve investment performance across a range of portfolios. He gives guidance on each asset class, including historic performance figures (many of which have not previously been publicly available). The book also offers the author’s own unique approach to many issues for institutional investors, including risk, liquidity and Total Funding.

GUY FRASER-SAMPSON has twenty years’ experience of the investment industry across a range of asset classes, most notably private equity. His career has included a spell as Investment Controller with the Abu Dhabi Investment Authority, and setting up and running for several years the European operations of one of the world’s leading fund of funds managers.

Guy is a well-known figure on the conference circuit, both as a speaker and as a panellist. His first major speech on MAC investing (to the UK’s National Association of Pension Funds in 2005) sparked media attention around the globe and helped to establish MAC investing as one of the current hot topics of the investment world. He is the inventor of the Total Funding Model, by which pension funds can calculate their target rate of investment return, and previously developed a model for analysing the performance of buyout managers.

Guy Fraser-Sampson has an LLB with Honours from King’s College London and an MBA majoring in finance from Warwick Business School. Originally a practising lawyer, he was made an equity partner in a City of London law firm at the age of 26, having been elected a Fellow of the Royal Society of Arts a year earlier. Guy has contributed many articles over the years to investment and pension publications, but this is his first book.



1. Investment Strategy.

What is strategy?.

What is investment strategy?.

Planning to achieve the objective.

1. Real and artificial liabilities.

2. Mapping the liability cashflows.

3. Total funding.

4. The escalator factor.

5. Putting it together.



2. Multi Asset Class Investing.

The asset allocation background.

Potential problems in moving to a Multi Asset Class approach.

The Yale Model.

Higher returns as a goal, not peer group benchmarking.



Long-term returns.

The Yale Model and MAC investing.


Quoted equities.

How much should be allocated to each asset class?.

How is the Yale Model currently allocated?.

What does one look for in selecting an asset class?.

Is there a sufficiently robust benchmark available for the asset class?.

Based on the benchmark, does it exhibit an acceptable level of return risk?.

Based on the benchmark, does it exhibit an acceptable level of capital risk?.

Based on the benchmark, does it exhibit an acceptable level of correlation with domestic quoted equities?.



3. Risk.


The atheist cathedral.

Risk and the capital asset pricing model.

How ‘risk’ is used in practice.

Arithmetical problems with beta.

Conceptual problems with beta.

Why beta and the CAPM are irrelevant.


4. How to Define Risk.

Risk and uncertainty.

Risk and diversification in the artificial world.

Risk in the real world: uncertainty and materiality.

Towards a new definition of risk.

Return risk.

Capital risk.


5. How to Calculate Risk.

Phi calculations.

Phi and beta.

Compound return-based modelling.

The future of risk analysis.

Direct comparison of different asset classes.

Other types of risk.


6. Quoted Equity.

Active versus passive equities management.

Which indices will we examine?.

What correlation is there between quoted markets?.

Correlation and the dollar investor.

Correlation and the sterling investor.

Return risk of quoted equities.

How to improve quoted equity returns.


7. Hedge Funds.

What is a hedge fund?.

Hedge fund investment strategies.

What benchmarks are available and which should we use?.

How do the various hedge fund strategies compare?.

What return risk is present in hedge funds?.

Does the index properly show potential portfolio returns?.

Hedge funds within the Yale portfolio.

What capital risk is present in hedge funds as an asset class?.

How are hedge fund returns correlated with those for quoted equity?.


8. Private Equity.

Venture capital.




Vintage year versus annual returns.

Further complexities of private equity returns.

What return risk is present in private equity?.

What capital risk is present in private equity?.

What degree of correlation does it exhibit with quoted equity markets?.

How does one address the slow capital take-up issue?.


9. Property.

Investing in property.

Investing in property (real estate) directly.



Investing in property indirectly.

Quoted property companies.

Specialist quoted vehicles.

Private institutional funds (limited partnerships).

What performance benchmarks should we use?.

What level of correlation exists with quoted equity returns?.

What levels of return risk and capital risk does UK property exhibit?.

How have returns varied by sector?.

Can property returns be improved by leverage?.

Analysing the possible effect of leverage on a property portfolio.


10. LDI and Portable Alpha: Rival Strategies?.


What is ‘liability driven investment’?.

The differing positions of the pension plan and the employer.

How does liability matching help?.

Why liability matching does not work.

The pension plan as creditor.

The strategic dilemma.

Summary of LDI.


The concept.

Problem 1: The traditional risk model.

Problem 2: Pure alpha.

Problem 3: Exactly what is being suggested?.

Problem 4: Alpha returns.

Summary of portable alpha.

Rival strategies?.

11. Liquidity.

Creating artificial liquidity.

Why do institutional investors need liquidity, and how much.

liquidity do they need?.

Are so-called alternative assets really illiquid? And, if so, just how illiquid?.

Hedge funds: Liquidity considerations.

Private equity: Liquidity issues.

Property: Liquidity issues.

Liquidity of so-called alternative assets.

Irrationality of liquidity concerns.


12. Portfolio Performance.

Cost-adjusted performance.

What returns will we use?.

Parameters of the model.

Relative performance.

What about rebalancing?.

Are private equity returns modelled realistically?.


Appendix 1: Tables of Performance Figures.

Appendix 2: Investment Strategies for DC Schemes and Mature Pension Plans.