Investing Without a Map: How Global Pension Funds Are Adopting Dynamic Asset Allocation

Texas public employee retirement systems are operating in one of the most uncertain investment environments in decades, according to a new global survey from the Amundi Investment Institute and CREATE-Research. The report, "Dynamic Asset Allocation on the Rise as Pension Plans Face an Era of Controlled Disorder," released in December 2025, describes today's market landscape as an era of controlled disorder, shaped by heightened volatility, shifting U.S. policy, and structural inflation pressures.

For trustees and administrators responsible for safeguarding the retirement security of Texas police officers, firefighters, and municipal employees, these findings offer timely insight into a rapidly changing investment environment.

The report draws on a 2025 survey of 158 pension plans across 14 jurisdictions, representing €2.9 trillion in assets. Although the report converts all assets into euros for consistency, as Amundi is a European-based asset manager, the surveyed pension plans span 14 global jurisdictions, including the United States. The figures do not represent European assets alone. For readers' reference, €2.9 trillion is approximately $3.1 to $3.2 trillion, depending on the exchange rates at the end of 2025.

According to the Amundi Investment Institute and CREATE-Research, the survey's findings show that Dynamic Asset Allocation, or DAA, is becoming an essential complement to traditional Strategic Asset Allocation, or SAA, as pension funds adapt to a new market regime.

Click to download the full report.

1. Moving From Static to Adaptive Strategies: SAA and DAA as Complementary Tools

Strategic Asset Allocation has long served as the foundation of pension fund investing. It establishes long-term targets intended to support funding needs under stable conditions.

The report notes that today's environment requires more flexibility. DAA is defined as a pragmatic periodic deviation from SAA in response to evolving market regimes, emerging risks, or episodes of market stress. It does not replace SAA. Instead, it serves as a protective mechanism that helps funds make informed adjustments when markets shift quickly or disconnect from fundamentals.

One survey respondent explained the relationship clearly:

"SAA remains the cornerstone of our portfolio and DAA seeks to protect it. We use both."

This concept is especially relevant for Texas systems, as they balance long-term commitments with liquidity needs and demographic changes.

2. What the Data Shows: A Global Shift Toward DAA

Survey results indicate a widespread recognition that investment conditions have shifted in ways that necessitate more adaptable strategies.

Market concerns driving the shift:

• 83 percent fear U.S. trade, finance, and defense policies will be disruptive.
• 62 percent fear rising trade tensions will revive inflation.
• 56 percent worry that increases in public debt will lead to higher interest rates.
• 88 percent believe that current market drivers indicate frequent turbulence in the macro financial regime.

DAA adoption and expectations:

• 84 percent expect DAA to play a larger role in their investment strategies.
• 75 percent plan to engage in or expand DAA efforts over the next three years.

Reported effectiveness:

• 63 percent say DAA has made their portfolios more resilient.
• 63 percent report outcomes in line with or above expectations.

For Texas trustees who monitor inflation exposure, interest-rate sensitivity, and policy uncertainty, these findings reinforce the notion that pension plans worldwide are rethinking traditional allocation practices.

3. Five Themes That Matter for Texas Fiduciaries

1. Flexibility Defines DAA

DAA enables periodic adjustments to long-term allocation targets, allowing for the mitigation of emerging risks or the exploitation of opportunities. It depends on forward-looking analysis and disciplined evaluation, not short-term speculation.

2. A New Era of Volatility Requires More Active Navigation

Survey respondents cited several forces reshaping global markets, including geopolitical realignment, supply chain restructuring, rising public debt, and persistent inflation pressures. For Texas systems, these factors influence cash-flow planning, rebalancing decisions, and long-term projections.

3. DAA Adoption Is Rising Across Plan Types

Seventy-three percent of surveyed plans now use DAA to some extent.

Smaller plans often rely on external managers, while larger plans may use internal CIO models or adopt a total portfolio approach. Texas systems represent both types, making these comparisons useful for evaluating governance structures.

4. Risk Minimization Is the Primary Objective

The top goal, reported by 58 percent, is to minimize downside fat-tail risks and portfolio volatility. This is especially important for mature Texas plans that manage sequence-of-returns risk, where large losses during periods of heavy benefit payments can significantly impact long-term funding.

5. Governance, Expertise, and Access Are Essential

Respondents who reported successful DAA outcomes identified three critical factors:

• Nimble governance that allows timely decision-making, cited by 62 percent
• Deep internal investment expertise, cited by 58 percent
• Access to top-tier external asset managers with dynamic allocation experience, cited by 59 percent

These insights underscore the importance of robust investment committees, clear delegation of authority, and high-quality consultant relationships for Texas boards.

4. Tools and Approaches Funds Expect to Use

Survey respondents identified several tools they expect to use as part of their DAA programs over the next three years, including:

• Risk factor investing, cited by 58 percent
• Derivative overlays for inflation, interest-rate, currency, or equity hedging, cited by 57 percent
• Actively managed developed-market equities, cited by 53 percent

The report emphasizes that DAA is not market timing. Without proper governance, modeling, technology, and risk systems, DAA can collapse into simple predictions of short-term price movements, which the report warns against. This point is especially relevant for Texas systems with lean internal staff.

5. What This Means for Texas Public Pension Trustees

The report offers several implications for Texas trustees and administrators:

DAA is becoming a significant fiduciary discussion.

Boards are assessing how to incorporate flexibility into investment oversight while maintaining long-term discipline.

Volatility appears structural rather than temporary.

This affects risk budgeting, actuarial evaluations, and contribution planning.

Downside protection is essential for funding stability.

For plans with significant benefit outflows, avoiding severe drawdowns is a central fiduciary responsibility.

Effective governance is the foundation for success.

Plans with clear decision-making authority, strong oversight, and experienced partners perform best with DAA.

DAA enhances, rather than replaces, long-term strategy.

SAA remains the anchor. DAA strengthens resilience during periods of turbulence.

Conclusion

The December 2025 Amundi and CREATE-Research report highlights the structural shifts reshaping pension investing. For Texas trustees and administrators, it underscores a key principle of fiduciary duty: long-term resilience requires preparation, strong governance, and a disciplined ability to respond to changing market conditions.

Dynamic Asset Allocation is emerging as a valuable tool that can help Texas systems manage risk, stabilize funding outcomes, and fulfill their mission to protect the retirement benefits of local government employees across the state.

About the Author: Allen Jones is the director of communications and event marketing for TEXPERS. He joined the Association in 2017. Before TEXPERS, he worked in the news media industry, producing content for newspapers, magazines, and online publications and leading newsrooms as an editor and publications manager. [email protected]