Strategic Asset Allocation for Foundations

XYZ Foundation, a mid-sized charitable organization, has an endowment of $100 million, which it uses to fund various community projects. The foundation's investment committee aims to achieve a 5% real return to support an annual distribution of approximately $5 million. Recently, market conditions have posed challenges to achieving this target return due to increa\sing inflation, volatile equity markets, and historically low interest rates.

You are the investment advisor for XYZ Foundation. Address the following:

1. Discuss the strategic asset allocation approach you would recommend for the foundation to achieve its return objectives while managing risks associated with inflation and market volatility.

2. Identify and justify three investment strategies or asset classes that could enhance returns in the current market environment while remaining consistent with the foundation's mission and risk tolerance.

3. Evaluate the impact of environmental, social, and governance (ESG) considerations on the foundation's investment policy and potential portfolio construction.