Asset Allocation Guidelines
Determining what percentage of the portfolio will be invested in various asset
classes-stocks, bonds, real assets, private capital, hedge funds-is the single most
important component of an investment policy. Numerous studies have shown that asset
allocation accounts for the majority of investment performance. Asset-allocation
guidelines should be logically consistent with the endowment's specified return
objectives and relevant risks.
For most institutions, the allowable ranges or variation from target should be
relatively narrow. Narrow asset-allocation ranges allow the flexibility to make small
bets or tactical tilts, while protecting the investment policy and the endowment from
the pressure to abandon sound, long-term strategy in the face of short-term adversity.
- Does your institution's investment policy specify asset allocation guidelines and
are they defined within narrow ranges?
- Does the policy statement include a discussion on the institution's view of risk
and its impact on the asset-allocation guidelines?
- Do the asset-allocation guidelines reflect the long-term view toward measuring