- Equity-like investments for nearly all returns
- Illiquid investments as a means of picking up extra premium
- Added return through selection of skilled managers.
The first table shows the allocations for the Yale endowment. They do not change that much. Of course, Yale University can think about the very long-run, but for all of the changes in valuation and risk over the last decade, the portfolio is very stable.
Unfortunately, some of the focus on manager selection. stable asset allocation, and more equity-like returns is related to the fact that many portfolio managers have not been very good at getting their asset allocations right. Of course, if you can avoid "bad" states when there is a recession you will be a hero. Unfortunately, few are good at taking risk off the table at the right time or putting it back on during the depth of the gloom.
We believe this focus on asset allocation is the reason for global macro and managed futures. These are the strategies that emphasizes asset allocation and major bets, not security selection. Get the betas right and you will create a positively convex return stream.