Asset allocation, the distribution of investments across asset classes, is the single most critical factor influencing portfolio performance. Research by Brinson, Hood and Beebower (1986) revealed that asset allocation accounts for 93.6 percent of return variations, and Ibbotson and Kaplan (2000) confirmed more than 90 percent of a typical portfolio’s return variability stems from allocation decisions, rather than individual stock selection or market timing.

Modern portfolio theory, introduced in the 1950s, established diversification as a core principle, advocating for the combination of low-correlation assets to reduce risk. However, market evolution has driven new approaches to portfolio construction. The Norwegian model leans heavily on public securities and passive management, reflecting a belief in market efficiency. The endowment model, pioneered at Yale by David Swensen, prioritizes diversification through alternative investments such as private equity and hedge fun