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Investment ProcessThe investment process starts with the quantification of the investment objective of a sustainable and reliable level of spending. Based on long-run investment return assumptions for various asset classes, a spending rate of 5% of average market value on a trailing 16 quarters has been adopted. This translates into an average expected return (excluding inflation) of 6.5% for
This real return objective then drives the portfolio design process. The first step of the process is to decide what kinds of assets ("asset classes") will be included in the portfolio. At Macalester we have decided that in addition to traditional stocks and bonds, we will also hold real assets (e.g. oil and gas properties, timberland, real estate) and invest in non-traditional strategies that are typically found in investment vehicles called hedge funds. Moreover, the endowment's bias is toward equities. We hold government bonds only as an insurance policy against risks of deflation and inflation. The portfolio is then diversified by asset class, geography, company size, and manager style, as well as by active and passive management. The portolio currently has approximately 40 managers executing 16 different strategies across 11 different asset classes. Allocations to these various strategies are made by policy, and assets are then rebalanced to the target allocations on a regular basis. The broad asset class allocations can be seen within the governance policies.
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