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Enhancing asset allocation via multi-objective optimization
Raj Paramaguru
Solutions Portfolio Manager
Ilia Lanski
Solutions Analyst

 


Given the surging demand for multi-asset investment solutions, the retirement success and financial security of millions of Americans are now tied to the decisions the managers of these strategies make.

 

At the core, these strategies are attempting to solve the same problem: providing diversified exposure to financial assets, creating optimized portfolios in an attempt to offset various risks, and pursuing specific financial goals. But the methods by which those portfolios are created are evolving.

 

This paper explores our efforts to build on the limitations of traditional mean-variance optimization models with a multi-objective approach that considers a more complete picture of investor needs and can result in more diversified asset allocations that can potentially deliver superior investment outcomes.

Key takeaways:

  • The multi-objective optimization approach is a combination of simulation-based modeling with considerations of multiple variables anchored to specific investor goals

  • Investor personas are mapped onto optimization metrics, analyzed through the multi-objective optimization model, and translated into allocations to specific underlying strategies

  • Our multi-objective allocation provides another quantitative tool to help us overcome the shortfalls of more traditional approaches

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Raj Paramaguru is a solutions portfolio manager with 26 years of industry experience (as of 12/31/2023). He holds an MBA with honors from University of Chicago’s Booth School of Business, a master’s degree in industrial engineering from the University of Cincinnati and a bachelor’s degree in mechanical engineering from Anna University, India. He also holds the Chartered Financial Analyst® designation.

Ilia Lanski is a solutions analyst with 23 years of industry experience (as of 12/31/22). He holds a PhD in theoretical physics from the Budker Institute of Nuclear Physics  and a master’s degree in physics from Novosibirsk State University, both in Russia.  

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