In this chapter we introduce the general principles of asset allocation in respect of an institutional investment portfolio. We then apply those ideas to particular types of institutional investor. This chapter is both descriptive and analytical, and concentrates on the important concepts and principles that are used in the asset allocation process. In Chapter 4 and Chapter 5 we will look at mathematical techniques that can be used in the investment analysis and asset allocation process. It should be possible to rationalise the conclusions of the later chapters in terms of the discussion in this chapter.