Strategic Asset Allocation for the Berkeley Foundation

The Berkeley Foundation, a well-established philanthropic organization, manages an endowment of $750 million. Its primary investment objective is to provide a sustainable annual distribution of funds to support educational initiatives, while maintaining the purchasing power of the endowment over time. Given the unique characteristics of their investments, such as liquidity requirements and social responsibility preferences, they have targeted an average real return of 5% per annum. Recently, the investment committee reviewed the portfolio and is considering adjustments in asset allocation in response to changing market conditions and anticipated returns across asset classes.

As a portfolio manager, you are tasked with recommending an updated strategic asset allocation for the Berkeley Foundation. Your response should include an analysis of the current economic environment, implications for different asset classes, and justification for your proposed allocation changes. Additionally, discuss how your recommendations align with the foundation's mandate and long-term objectives, and consider any constraints that may affect implementation.