TY - JOUR T1 - Strategic Asset Allocation for Endowment Funds JF - The Journal of Portfolio Management SP - 114 LP - 127 DO - 10.3905/jpm.2021.1.227 VL - 47 IS - 5 AU - Kathleen E. Jacobs AU - Adam Kobor Y1 - 2021/03/31 UR - https://pm-research.com/content/47/5/114.abstract N2 - An endowment fund serves as a permanent source of capital to support a specific mission. It has, in the case of a university, dual goals of providing current financial support to the university and preserving long-term purchasing power to ensure that support continues in perpetuity. This article explores a methodology for constructing strategic asset allocation for endowment funds in the context of these competing long-term investment goals.TOPICS: Foundations & endowments, portfolio constructionKey Findings▪ In constructing a strategic asset allocation for an endowment, a traditional mean-variance optimization framework alone does not provide sufficient context to generate comprehensive forward-looking analysis. However, adding additional measures such as maximizing the probability of achieving investment goals or minimizing relevant downside distress measures over the long term can improve the analysis.▪ A typical endowment’s asset allocation, with an equity orientation and tilt toward alternative asset classes, nearly maximizes the probability of achieving the dual long-term investment goals of meeting a spending rate target while preserving real capital, as well as minimizes endowment-specific downside risk measures.▪ Optimal portfolio choices are dependent on underlying return expectations across asset classes. Although expected returns are typically the highest for private investments, there are limits to investing in private asset classes, including an endowment’s liquidity requirements and ability to access the best-performing managers. ER -