Total Return Strategy for Foundations

Medium Institutional Portfolio Mgmt Foundations And Endowments

A large foundation, dedicated to advancing education and public welfare, has recently revised its investment policy statement (IPS). The board of the foundation recognizes the need to align its strategic asset allocation with its long-term objectives and its spending policy, which mandates a 5% annual distribution of the fund's average market value over the previous 12 quarters. The foundation's current asset allocation includes 60% equities, 30% fixed income, and 10% alternatives.

Amidst the discussions, the board hears from various stakeholders about the implications of market volatility on their spending capabilities, particularly in times of economic downturns.

What would be the most effective approach for the foundation to manage its investment portfolio to ensure that it can meet its spending obligations while maintaining the purchasing power of its assets over time?

Increase the allocation to fixed income securities to reduce portfolio volatility.

Maintain the current asset allocation but implement a tactical asset allocation strategy.

Adopt a total return approach that combines income generation with capital appreciation.

Hint

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