Daily Archive: January 1, 2020

Disciplined Systematic Global Macro Views

Forgot about the original 60/40 stock/bond mix. Overlook the 50/30/20 stock/bond/alternatives mix. If you don’t need liquidity, as is the situation for the endowment profile allocations, a mix between illiquid and liquid is a much better base framework. Hold private equity and real estate as core allocations. This core is perfect for long-term appreciation and cash flow greater than bonds but is illiquid generally. Take money from fixed income and cash. Take funds from public use and equities, hedge funds, which may have mixed liquidity, as yet another return enhancer. The public equity and relationship/cash part of portfolios are between 25 and 50%, while hedge funds are from 7.5 to 32.5% for these key endowments.

The majority of their allocations aren’t with traditional equity and relationship beta. Making a generalization, the new endowment allocation is 35/45/20 or 35% liquid betas, 45% liquid investments, and 20% alpha. Obviously, you can come up with other descriptors given the chart quantities but we are looking for some simple commonality on the asset allocation.

First, if you don’t need the liquidity find investments that you’ll get paid reduced when planning on taking on illiquidity. Second, look for come back or alpha enhancements where you can find them. Hedge funds can be alpha enhancers and substitutes for fixed income or beta. Third, cut your public beta exposure or at least change it to more liquid investments that can give more beta per dollar invested. Most private equity will be at higher market beta or credit … Read more