Investment Strategy for Stability in Foundations

A regional arts foundation has a diverse investment portfolio that includes equities, bonds, and alternative investments. Recently, the board of directors has expressed concerns about the volatility of the portfolio, especially in light of recent economic events that have affected equity markets. The foundation's investment policy statement emphasizes the need for a sustainable distribution model that supports its ongoing artistic programs while preserving the endowment's purchasing power over time.

The board is considering adjusting the portfolio to mitigate the impact of market volatility. They are debating whether to shift a portion of their equity holdings into fixed-income securities or to increase their allocation towards alternative investments like private equity and hedge funds, which might offer higher returns but come with increased risk.

With the aim of delivering stable, predictable returns that align with the foundation’s mission of supporting the arts, which of the following approaches would best suit the foundation’s needs?