This study examines how Strategic Asset Allocation (SAA) operates within alternative investments and analyzes the structural and behavioral constraints that arise during the allocation process. We argue that while traditional SAA frameworks are well-suited for liquid, homogeneous asset classes (such as publicly traded equities and bonds), their mechanical application to illiquid and heterogeneous alternative investments creates significant inefficiencies. Recently, major Korean public funds—including the National Pension Service, Government Employees Pension, Private School Teachers Pension, and the Industrial Accident Compensation Insurance Fund (IACIF)—have increased their allocations to alternative investments to enhance long-term returns. However, such “allocation focused strategies” often neglect market conditions and asset-specific characteristics, leading to mechanical implementation that undermines the original strategic objectives. Korean institutional investors are particularly vulnerable to headline risk, which results in conservative behavioral responses. Even when long-term recovery potential exists, exposure to negative media coverage or audit findings often leads to early withdrawal or suspension of capital contributions. This study empirically discusses these issues through the case of IACIF and suggests policy recommendations to guide public funds toward more market-friendly and flexible alternative investment allocation strategies.