As capital market returns have become less stable over the last decade, increasingly investment managers have been looking to other markets to generate returns on their portfolios. This has led to an increased asset allocation into real estate, infrastructure and other non-capital market based assets. Aside from return generation, another perception is by adding these types of assets into a portfolio the investor is adding one which is “non-correlated” to the typical bonds and stocks capital market products in their portfolio.
From a risk management perspective the primary goal is help risk managers and investment managers answer the question of what will be the value of their portfolio at some future time horizon and what is driving this valuation. These questions can be answered by developing scenarios on the risk factors driving the pricing models of the securities both public and private in the portfolio. The scenarios on the risk factors can be correlated or non-correlated.