Investment Strategy for XYZ Foundation

XYZ Foundation is a charitable organization that focuses on environmental sustainability projects. The foundation operates with a substantial endowment of $500 million, which provides funding for various initiatives aimed at combating climate change. As part of its long-term investment strategy, the foundation has adopted a spending policy that allows it to withdraw 4.0% of its endowment each year to support its mission while seeking to grow the fund to outpace inflation over time.

Given the foundation's goals and constraints, analyze the most appropriate investment strategy. Discuss how the foundation should determine its asset allocation, the trade-offs of different asset classes, and any relevant considerations regarding liquidity, risk tolerance, and impact investing.