An asset class should have some simple characteristics. It should be definable, have something that can serve as a benchmark, be uncorrelated with other asset classes, and understandable. Even this simple categorization can lead to arguments. Are international equities a separate asset class? What about private equity? What about emerging markets or hedge funds that focus on equities? If we move to fixed income, there are simple questions of whether government bonds should be separate from credit. Is cash different than bonds? Should real estate and commodities be separate or combined as a real assets? The question of how to divide hedge funds is another definitional trap. How many hedge fund categories are appropriate? Many focus on long/short equity and all else.
The impact of these choices is real especially with less exposure focused on equities and fixed income. If asset allocation decisions and performance monitoring is to be done effectively, it seems such a simple question as setting the right buckets should be universally addressed. Are more categories better than less? Of course, the real issue is whether this should matter. If I have fewer or more categories for classification will this help generate better performance? That critical issue still needs to be answered.