Asset Allocation
The Policy Portfolio is the target asset allocation of the portfolio; it represents the Investment Committee’s view on what percentage of the Investment Pool should be invested in each asset class (e.g. equities, fixed income, and cash). As such, the Policy Portfolio embodies an optimal mix of the Investment Committee’s long-term view of market opportunities, including long-term expectations for investment returns and risks for each asset class. Ultimately, how we allocate the assets is the single largest driver of investment performance.
Annually, the Investment Committee and the Investment Office review asset allocation to establish the Policy Portfolio, including rebalancing ranges and benchmarks. Our asset allocation is disclosed in our annual Investment Report.
Building a diversified portfolio
A Careful Liquidity Position
Maintaining a fully invested, yet liquid portfolio is integral to the dual goals of generating the long-term expected return necessary to support the College and providing funds to the College on a timely basis. Oftentimes, high returning investments may come at the expense of liquidity. The Investment Office, working closely with the Provost and Vice President for Finance and Administration, models future cash flows with an eye towards maintaining a fully invested portfolio while having sufficient liquidity to fund College operations and the capital calls for illiquid investments.
Asset Classes
Williams’s diversified portfolio currently has nine asset classes, outlined below.
View the above information in a table →
Policy Portfolio Fiscal Year 23
Why Diversification Matters
Diversification helps mitigate risk by reducing the volatility of portfolio returns. Spreading investments across different asset classes, which invest in different areas of the market, reduces (although doesn’t eliminate) the chance of experiencing large losses. Reducing the chance of experiencing large losses is particularly important for Williams, where we rely on the endowment for over 50% of the operating budget annually.
The chart below shows the performance of each asset class in recent fiscal years. In strong performance years, equity-oriented asset classes have typically performed well. This must be balanced by less correlated asset classes that can provide downside protection during more challenging markets (as seen in 2009!).
Asset Class Performance Over Time As of June 30, 2024
Click to expand the chart below.
