Evaluation and Recommendations for University Endowment Investment Strategy

As a consultant for a large university endowment, you have been asked to evaluate the current investment strategy employed by the endowment and present recommendations based on the institution's unique mission and spending needs. The endowment has a target return of 7% per annum, and the spending policy allows for up to 5% of the market value of the endowment to be distributed annually to fund scholarships and faculty positions.

The endowment's current asset allocation consists of 60% equities, 30% fixed income, and 10% alternative investments. Recent performance has been below the target return, raising concerns among the board of trustees. Analyze the situation considering the following aspects:

• Evaluate the appropriateness of the current asset allocation in relation to the institution's spending needs and risk tolerance.
• Discuss the implications of market conditions on the endowment's investment strategy and returns.
• Provide specific recommendations to improve the strategy, including possible adjustments to asset allocation, selection of investment vehicles, or changes to the overall investment approach.

Support your analysis and recommendations with relevant performance metrics and any academic research that may be applicable.