Optimal Asset Allocation Implementation for an Endowment Fund

As the newly appointed Chief Investment Officer (CIO) of an endowment fund, you are responsible for revamping the fund's asset allocation strategy to enhance returns while adhering to its long-term investment horizon and liquidity constraints. The endowment has a current allocation of 60% equities, 30% fixed income, and 10% alternatives. After conducting a comprehensive review, you've decided to increase the allocation to alternatives to achieve better diversification and reduce overall portfolio volatility.

Given the endowment's liquidity constraints, you are evaluating three implementation strategies for increasing the allocation to alternatives. Each strategy has its unique risk and return characteristics, and you must select the one that best aligns with the fund's objectives.