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This article outlines the application of a systematic factor approach to fixed income investment/risk management. We show that using a parsimonious set of factors explains the returns in fixed income portfolios very well. In turn, this implies that forecasting the returns for these parsimonious factors is an efficient and targeted approach to active management. We further show that it is possible to create a portfolio with balanced exposure to the identified risk factors that, in turn, provides a framework for evaluating the efficacy of active management. [ABSTRACT FROM AUTHOR]

The article discusses issues related to shifting risk from traditional assets to alternative investments including private equity, real estate, hedge funds and strategies. Topics discussed include framework for developing total fund investment policy, future of traditional active investment management and outpeformance of buyout managers over the long term.

The article describes the concept of risk parity in total fund allocation strategy which refers to an investment strategy advertised as balancing risk exposures. It is inferred that risk parity strategies involve leverage which increases effective exposure to lower-volatility asset classes. The role of bond allocation in risk parity strategies is outlined.