The Investment Fund for Foundations: www.tiff.orgPolicy Portfolio Redux Exhibits
[Investment Committee Behavior]
Source: 2003 4Q Commentary
(These are the exhibits referenced from the article Policy Portfolio Redux. Please use your browser's back button to return to the main article.)
Exhibit 1 — Impact of 12/31/2002 Policy Changes
| Pre 12/31/02 |
Post- 12/31/02 |
∆ in Weight |
2003 Benchmark Return |
|
| US Stocks | 25% | 23% | -2% | 31.6% |
| Foreign Stocks | 25% | 23% | -2% | 40.8% |
| Absolute Return | 20% | 20% | — | 6.2% |
| High Yield Bonds | — | 3% | +3% | 28.0% |
| REITs | — | 3% | +3% | 36.7% |
| Resource-Related Stocks | 5% | 7% | +2% | 38.9% |
| Conventional Bonds | 10% | 8% | -2% | 1.3% |
| Inflation-Linked Bonds | 15% | 13% | -2% | 7.3% |
| Total | 100% | 100% | NA |
Exhibit 2 – 6/30/2003 Policy Changes
| Pre 6/30/03 |
Post- 6/30/03 |
∆ in Weight |
|
| US Stocks | 23% | — | -23% |
| Foreign Stocks | 23% | — | -23% |
| Global Stocks | — | 46% | +46% |
| Absolute Return | 20% | 20% | — |
| High Yield Bonds | 3% | 3% | — |
| REITs | 3% | 3% | — |
| Resource-Related Stocks | 7% | 7% | — |
| Conventional Bonds | 8% | 8% | — |
| Inflation-Linked Bonds | 13% | 13% | — |
| Total | 100% | 100% | NA |
Exhibit 3 — Illustrative Policy Portfolio
- Primary goal = maintain purchasing power in face of maximum sustainable withdrawals.
- Secondary goal = avoid peak-to-trough declines in endowment unit values exceeding 25%.
- Assumes a 30-year investment horizon and access to top-tier managers in all markets.
- Assumes ILBs purchased near or below par to maintain their utility as deflation (and inflation!) hedges. See TIFF Commentary for 4Q 2002.
| Expected Gross Returns | Allocation | |||||
| Real Return | Value Added [a] | Real Total Return | Current | Proposed | Benchmark | |
| Segment / Eligible Assets | ||||||
| Total Return Assets | 69% | 71% | ||||
| Marketable Equities | 3.5% | 1.5% | 5.0% | 46% | 33% | MSCI All Country World Free |
| Private Equity | 10.0% | subsumed | 10.0% | 0% | 15% | MSCI All Country World Free + 5% per annum |
| Absolute Return | 6.0% | subsumed | 6.0% | 20% | 20% | Treasury Bill + 5% per annum |
| High Yield Bonds | 3.0% | 2.0% | 5.0% | 3% | 3% | Merril Lynch US High Yield Master II Constrained |
| Inflation Hedges | 10% | 12% | ||||
| Resource-Related Assets [b] | 6.0% | subsumed | 6.0% | 7% | 5% | Global Index of Resource-Related Stocks |
| Marketable Real Estate (REITs) | 3.0% | 3.0% | 6.0% | 3% | 0% | Morgan Stanley REIT Index |
| Private Real Estate | 6.0% | subsumed | 6.0% | 0% | 7% | CPI + 5% per annum |
| Deflation Hedges | 8% | 8% | ||||
| Conventional Treasuries | 1.0% | 0.0% | 1.0% | 8% | 8% | 10-year Treasury Bond |
| All Purpose Hedges | 13% | 9% | ||||
| Inflation-Linked Treasuries | 2.3% | 0.0% | 2.3% | 13% | 9% | 10-year Treasury Inflation-Protected Security |
| Cash Equivalents | 1.0% | 0.0% | 1.0% | 0% | 0% | |
| Totals | ||||||
| Percent Allocated | 100% | 100% | Weighted average of segment benchmarks | |||
| Expected Real Total Return | 4.6% | 5.5% | ||||
| Estimated Probability of Producing Less than 5% Real Return [d] | ||||||
| • Over 3 years | >50% | >75% | ||||
| • Over 30 Years | >60% | >35% | ||||
| [a] Expected value added from the use of assets or strategies that could cause a sub-segment's returns to deviate from the returns of its parent segment's benchmark. [b] Public and private. [c] Minimum and normal cash positions could be negative, subject to trustee discussion of appropriate leverage ratios. Endowed charities can lever their portfolios without incurring unrelated business taxable income - if they're clever about it. Of course, if leverage is permitted, non-cash ranges must be tweaked accordingly. [d] Shortfall probabilities are expressed imprecisely to underscore the inherent limitations of computerized approaches to policy formulation. These limitations are catalogued in the TIFF Commentary for 1Q 1999. Proposed mix has higher probability of shortfall over three years due to private investments' tendency to perform poorly during the initial years following their acquisition. |
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Exhibit 4 - Illustrative Policy Ranges
| Minimum | Normal | Maximum | |
| Total Return Assets | 71% | ||
| Marketable Equities | 25% | 33% | 60% |
| Private Equity | 0% | 15% | 35% |
| Absolute Return | 10% | 20% | 35% |
| High Yield Bonds | 0% | 3% | 10% |
| Inflation Hedges | 12% | ||
| Resource-Related Assets | 3% | 5% | 10% |
| Marketable Real Estate (REITs) | 0% | 0% | 10% |
| Private Real Estate | 3% | 7% | 15% |
| Deflation Hedges | 8% | ||
| Conventional Treasuries | 8% | 8% | 20% |
| All Purpose Hedges | 9% | ||
| Inflation-Linked Treasuries | 9% | 9% | 20% |
| Cash Equivalents | 0% | 0% | 10% |
| Total | 100% |
