We first discuss arguments that rebut quantitative portfolio allocation for the long term based on non predictability of asset markets. Next, we find that over long time horizon such as 10 years, macro-economic forecasts of various economic variables outperform in terms of meansquared
errors those obtained with purely statistical techniques. We discuss the components needed to model liability returns and empirically demonstrate that a) portfolio allocations taking into account pension fund hedging demand substantially differ from traditional asset allocations
that b) in terms of certainty equivalent, there is a large cost if one neglects liabilities. The utility cost of using suboptimal strategies amounts to several percent returns essentially due to deterioration of volatility. The cost of imposing positive weights on asset-liability management allocations is also economically significant.