Black-Litterman asset allocation model is now available in Zephyr Associates' AllocationADVISOR

Well-diversified asset allocations you can actually use!

Zephyr Cove, Nevada — April 18, 2005 — Zephyr Associates, a leading provider of analytical tools for the investment industry, today released AllocationADVISOR version 6, which includes the Black-Litterman asset allocation model. AllocationADVISOR’s Black-Litterman Forecast Model is a state-of-the-art asset allocation framework based on the Black-Litterman Global Asset Allocation Model. The returns from the forecast model lead to an efficient frontier made up of well-diversified asset allocations. The model provides an elegant framework for mixing market implied returns with additional forecasts of return. The resulting asset allocations reflect the information in the additional forecasts and don’t require lots of constraints. Best of all, AllocationADVISOR’s implementation makes this sophisticated model very easy to use.

"Consultants, advisory firms, and institutional clients are finally going to reap the benefits of mean-variance optimization now that AllocationADVISOR’s Black-Litterman Forecast Model leads them to well-diversified asset allocations that reflect their unique research," says Steve Hardy, President of Zephyr Associates. "Our decision to include the Black-Litterman model in AllocationADVISOR was based on what we saw as a void in the marketplace and an inherent flaw in sound asset allocation formulation."

The Black-Litterman forecast model creates return forecasts which are based in sound economic theory and which help harness the power of mean-variance optimization. Using Black-Litterman return forecasts in mean-variance optimization results in intuitive, diversified portfolios which are relevant for practical investing. "The one criticism of mean-variance optimization has been that it produces asset allocations that are unintuitive and anything but diversified," says Hardy.

Harry Markowitz’s mean-variance optimization is widely regarded as the holy grail of asset allocation. Markowitz’s seminal work demonstrated how to form efficient or optimum portfolios based on three inputs – returns, standard deviation, and correlations. His work resulted in a Nobel Prize. Unfortunately, Markowitz never told us how to derive the inputs, especially the estimated expected returns. "That is the problem which is solved by the Black-Litterman asset allocation
model," adds Hardy.

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