Investment Policy Statement for University Endowment Fund
A prestigious private university runs a multi-billion dollar endowment fund that supports its educational and research initiatives. The fund is legally required to operate under a set of investment policies aimed at preserving capital while generating a sustainable level of income to maintain the university's annual operations. Recent economic trends, including low interest rates and high volatility in equity markets, have prompted discussions within the board of trustees regarding the fund's asset allocation strategies.
The board is particularly concerned about how to balance risk and return in the current financial environment. They have tasked you, the Chief Investment Officer, with reviewing and updating the endowment's investment policy statement (IPS). You must address the following issues:
- Discuss the specific investment goals and constraints that should be included in the IPS for the endowment fund.
- Analyze how the current economic conditions might affect the fund’s asset allocation, specifically related to equities, fixed income, and alternative investments.
- Propose changes to the existing investment strategy and justify these changes based on your analysis.