Re-evaluating the Smith Foundation's Investment Policy

The Smith Foundation is a philanthropic organization dedicated to promoting educational initiatives and community development. Recently, the foundation's board of directors conducted a review of its investment policy due to changes in its funding requirements, which now necessitate a more sustainable draw from its endowment. The current investment strategy allocates 70% to equities, 20% to fixed income, and 10% to alternative investments.

The newly appointed Chief Investment Officer (CIO) believes that a more balanced approach is necessary, considering both the risk profile and spending needs of the foundation. In light of this, the CIO is seeking to adjust the asset allocation to 60% equities, 30% fixed income, and 10% alternatives.

Discuss the considerations the CIO should take into account when re-evaluating the investment policy, including the foundation’s objectives, investment horizon, risk tolerance, and liquidity needs. Additionally, explain how the new asset allocation may impact the foundation's capacity to meet its funding requirements.