The investment decision process in general, and for institutional investors in particular, is a decision making problem under un-certainty. Each problem of decision making under uncertainty has three phases.

In the first phase, the risk and return trade off has to be made. Given the stakeholders’ objectives, constraints and the assumptions on various asset classes and risk drivers, this phase leads to a strategic asset alloca-tion. In the second phase, called portfolio construc-tion, the strategic asset allocation is translated into an actual investment portfolio. Finally, in the third phase, risk management and monitoring takes place to ensure that the assumptions that lead to the strate-gic asset allocation remain valid and that the imple-mentation stays in line with this strategic asset allo-cation.

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