The Asset Allocation
In seeking to maximize returns within managed risk parameters, the Office of Investments & Banking has developed a purpose-driven framework for asset allocation. This framework offers a clear methodology to construct a portfolio by segmenting assets into categories that align with an investment objective, instead of pursuing legacy asset class buckets.
To achieve higher returns, the Endowment pursues investments in private funds structures across most of the portfolio. Generally, investments range in size from $5 million to $25 million, depending on capacity and asset allocation constraints. Due to the size of commitments and overall risk tolerance, the Office of Investments & Banking tends to focus on niche strategies and smaller funds where alpha generation is often more significant.
Stability | 8% | Portfolio Overview
Provides stability, capital protection, and/or absolute return in difficult market environments for growth assets. Can seek an appropriate level of yield. Designed to mitigate, weather, and potentially reallocate during and after drawdowns in Growth portfolio. May have short-term absolute losses in certain market environments.
Largely defined by high quality, highly liquid fixed income assets.
Highly liquid. The main source of funds for on-going rebalancing, capital calls, and in times of market stress, the funding source for reallocating to the Growth and Diversifiers buckets.
Diversifiers | 30% | Portfolio Overview
To offer a meaningful return contribution (i.e. CPI + 5%) coupled with a low expected correlations relative to the Growth assets through gaining exposure to a diversified mix of senior lending/credit, hedge funds, niche strategies, real assets and opportunistic credit.
Varies widely based on underlying buckets with nuanced risk/return objectives.
- Enhanced Stability: Income oriented or low volatility strategies that are not classified within Stability. Sharpe ratios begin to approach 1.
- Idiosyncratic: Exposure to risk factors not commonly found elsewhere in the portfolio. Expected correlation to Growth assets should be close to 0.
- Growth Diversifiers: Offers a diversification benefit relative to the Growth bucket. Exposure can be countercyclical or inflation sensitive, while also maintaining an appropriate return in growth environments. Expected correlation to Growth assets between 0.4 and 0.7.
Investments may be opportunistic or shorter term in nature; liquid mandates represent a ready funding source for illiquid investments within this bucket. Target is for roughly 50% to be illiquid.
Growth | 62% | Portfolio Overview
Seeks higher returns through investing in asset classes whose primary return driver is associated with changes in economic growth.
Growth is categorized as global GDP growth, earnings growth, and financial growth.
- Equity: Exposure to equity beta exposure, predominantly through both public and private equity strategies.
Relative weighting within a given geography is determined through conviction in both illiquidity premium and alpha potential, but generally follows a mix of 45% US, 30% Developed non-US, and 25% Emerging Markets.
- Extended Credit: Primarily focused on credit strategies which are exposed to credit spreads that are highly correlated to equity beta specifically and growth expectations more broadly.
Varied across the liquidity spectrum; heavily weighted towards illiquid investments to generate higher returns.