Asset Allocation Comparisons

As a final check in our model portfolio construction process, we have collected information about the allocations being used by a number of institutions which have been widely recognized for their investment management skills. These include Harvard, Yale, and Stanford universities, the Ontario Teachers Pension Fund, and the California Public Employees Retirement System ("CALPERS"). Our assumption is that all of them are aiming to generate annual real returns of between 5% and 7%.

Asset Class	Harvard	Yale	Stanford	Ontario Teachers	CALPERS
Real Return Bonds	6%			9%
Domestic Bonds	11%	10% All Bonds	12% All Bonds	24% All Nominal Bonds	26% All Bonds
Foreign Bonds	5%
Real Estate	10%	0%	16%	11%	9%
Natural Resources and Commodities	13%	20%	7%	3%	0%
Domestic Public Equities	15%	15%		21%	39%
Foreign Public Equities	10%	12.5% Includes Emerging Markets	40% (Domestic, Foreign, Emerging)	28% Includes Emerging Markets	19% (Includes Emerging Markets)
Emerging Market Equities	5%
Private Equity	12%	17.5%	10%	4% (and Hedge Funds)	7% (and Hedge Funds)
Hedge Funds	13%	25%	15%

As you can see, our model portfolio allocations are reasonably close to those currently being used by these five highly respected investors (after adjusting for the fact that we have not included private equity and hedge funds in our universe of asset classes, because they are not easily accessed by retail investors). To be honest, this is reassuring, and strengthens our belief that we’re on the right track.