Revising Alpha Foundation's Investment Strategy

The Alpha Foundation, a prestigious philanthropic organization focused on advancing scientific research and education globally, currently manages an endowment worth $1.2 billion. The foundation's governing board is contemplating changes to its investment strategy to enhance returns while maintaining an acceptable level of risk in light of recent economic volatility and rising inflation rates.

The Foundation's investment policy statement (IPS) outlines several key objectives, including a long-term real return target of 6% and a focus on socially responsible investing (SRI). Currently, the asset allocation is 60% equities, 30% fixed income, and 10% alternatives. The board is concerned that the existing allocation may not adequately mitigate inflation risks or provide sufficient diversification.

As a consultant, you have been tasked with providing a comprehensive analysis and recommendations regarding the Foundation's investment strategy. In your response, address the following:

• Assess the Foundation’s current asset allocation in terms of alignment with expected returns and risk tolerance, particularly considering inflationary pressures.
• Evaluate the implications of increasing exposure to alternative investments versus adjusting equity and fixed income allocations.
• Propose a revised asset allocation strategy that incorporates the Foundation’s objectives, including SRI considerations. Justify your recommendations.