Each year the CIO proposes and the Endowment Committee reviews the strategic asset allocation targets and minimum and maximum constraints for individual asset classes for the endowment. The endowment is monitored by the CIO on a regular basis to identify variances from strategic targets. Factors considered in determining strategic asset allocation include:
Pooled Endowment Asset Allocation Policy Targets
ABSOLUTE RETURN seeks to achieve positive performance in all market conditions. Absolute return investment techniques include using short selling, futures, options, derivatives, arbitrage, leverage and unconventional assets.
FIXED INCOME generally provides moderate returns and dampens volatility by serving as a hedge against negative equity markets. During a period of decreased equity returns, high-quality fixed income securities represent a counterbalance, producing a reliable income steam and capital appreciation potential. Furthermore, opportunistic fixed income investments can offer higher, equity-like returns while providing the portfolio diversification benefits. Examples of such opportunistic investments are emerging markets debt and high yield bonds.
GLOBAL EQUITY comprises domestic, international, and emerging markets equity. Domestic and international equity have similar expected real returns, but they are not perfectly correlated and therefore provide some diversification benefits to the portfolio. Emerging markets equity provides similar diversification benefits, but with even higher expected returns and significantly higher volatility. Many non-U.S. markets, and especially emerging markets, are less efficient than U.S. markets, giving active managers a greater opportunity to add value.
LONG/SHORT comprises of buying long equities that are expected to increase in value and selling short equities that are expected to decrease in value. Short positions can be used as a hedge or protection against a falling market. By using a mix of long and short positions managers can create a lower portfolio risk profile.
PRIVATE EQUITY consists of buyout and venture capital and for-control distressed partnerships. Private Equity is expected to generate high real returns over time due to its higher risk and lower liquidity characteristics. Risk is partially mitigated by maintaining a portfolio that is well diversified by both fund vintage year and investment stage. The disparity between the best and worst performing funds is dramatic, which makes manager selection particularly critical.
REAL ASSETS are mainly private real estate, energy, power, infrastructure, timber, and illiquid commodities. The portfolio is designed to provide some diversification to other asset classes through exposure to assets that exhibit returns which are not correlated with those asset classes. It also provides a limited hedge against inflation.
Tulane University Investment Office, 203-716-8470 email@example.com