Asset Classes
The foundation of institutional portfolio construction relies on understanding the distinct risk/return profiles, correlations, and structural mechanics of different capital markets.
Equities
Ownership stakes in corporate entities. Driven by earnings growth, multiple expansion, and dividend yields. Represents the primary growth engine of modern portfolios.
- Historical Premium: ~5-6% over risk-free
- Volatility Profile: High (15-20% annualized)
Fixed Income
Contractual debt obligations. Driven by interest rates, credit spreads, and duration. Serves as portfolio ballast, providing predictable cash flows and capital preservation.
- Primary Risk: Interest Rate & Credit Default
- Correlation to Equities: Historically Negative/Low
Alternatives
Private equity, real estate, hedge funds, and commodities. Characterized by illiquidity premiums, distinct return drivers, and complex legal structures. Utilized to enhance return profiles and diversify away from public market volatility.