You are a member of a small university’s endowment; the investment committee includes three other individuals who have been members of the committee for 20 years. They each have deeply held beliefs about the future of financial markets; one strongly advocates shifting the portfolio to gold and Treasury bonds; the other believes that the portfolio should be 100% in emerging markets; the third advocates a portfolio similar to the university’s peers (30% in fixed income, 40% in US equities, 20% in developed international equities and 10% in emerging markets). The three have developed a strong animosity for each other, and have a history of unproductive meetings. They merely state that their approach is the only one that makes sense in the current economic environment. You have been selected as a committee member to help facilitate a more productive debate.

What economic scenarios would support each of the three approaches to asset allocation?

Does it make sense to set portfolio asset allocation based on the current market environment?

What points would you raise during the discussion of asset allocation?

Given the poor state of personal relationships on the committee, how would you suggest improving the committee’s operations?