The outcomes of traditional mean-variance analysis are highly sensitive to the expected returns that are used as input. is also holds for mean-variance analysis extensions that take into account nontradable pension liabilities. In this chapter, we use uncertainty in expected returns in an asset allocation framework with nontradable pension liabilities. is results in more robust portfolio weights than traditional optimization and circumvents the use of arbitrary portfolio restrictions. We apply this method to a U.S. pension fund that contemplates investing in several new asset classes. We illustrate this by showing how the allocation to emerging market equities for a large range of expected returns leads to more robust portfolios when taking the uncertainty in these expected returns into account.

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de Groot, W.A, & Swinkels, L.A.P. (2010). Pension fund asset allocation under uncertainty. In Pension Fund Risk Management: Financial and Actuarial Modeling (pp. 157–166). doi:10.1201/9781439817544