Asset Allocation Considerations for Nonprofits

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Following what was the worst global downturn in more than a generation, many institutional investors were forced to prematurely sell the most liquid portions of their portfolios, deviate from stated investment policy targets and/or issue debt to meet spending and cash-flow needs. Using the lessons learned during this period, we believe that nonprofit institutional investors can improve their liquidity and efficiency by incorporating relationships among spending rule, liquidity and asset allocation through the use of a flexible, integrated asset allocation model. In this paper, we briefly review reasons why endowments and foundations should view their asset allocation strategy in an integrated framework (i.e., assets and obligations) instead of the historical "asset only" approach to setting long-term investment structure.

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