Investment Strategy for Evergreen Endowment

Hard Institutional Portfolio Mgmt Foundations And Endowments

The Evergreen Endowment is a long-established fund managed to support various academic scholarships and research initiatives at a prestigious university. The endowment has a current market value of $1 billion and aims for a real return of 5% per annum to maintain its purchasing power, accounting for an annual inflation rate of 3%. The board of trustees recently reviewed the long-term investment strategy of the endowment and is particularly concerned about the potential impact of market volatility on the fund’s ability to achieve its return objectives.

Recently, the foundation's investment consultant proposed allocating a higher percentage of the portfolio to alternative investments to enhance overall returns. However, some trustees voiced concerns about the liquidity and risk involved with such investments. The board has requested a review of the current asset allocation strategy.

Given this background, how should the Evergreen Endowment's investment strategy be structured to best align with its need for stable, long-term returns while also addressing the trustees' concerns about risk and liquidity?

Increase allocation to alternative investments to achieve higher returns, while diversifying with a small allocation to cash equivalents.

Maintain the current allocation with a focus on traditional equities and fixed income, ensuring liquidity close to the 5% return target.

Implement a strategic asset allocation that balances traditional investments with a moderate allocation to alternatives for enhanced returns.

Hint

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