The Financial Assets portion of the Endowment is a diversified global portfolio of public and private equities, fixed income and other financial investment assets. The long-term objective of the Fund is to meet or exceed an annualized real return of 5.0% (CPI + 5 percentage points). This supports a strong bias for equity investments (broadly defined), a commitment to active management and a willingness to take a contrarian approach.
Kamehameha Schools believes in the importance of active investment management as a source of added value and therefore utilizes third-party investment managers as its primary strategy. Diversification of risk is a core tenet in the construction of the portfolio.
Risk budgeting is used to construct the portfolio, rather than asset allocation. Risk budgeting targets a level of portfolio risk that solves for our long-term requirements while incurring acceptable near-term risks. We currently target a portfolio beta between 0.70 and 0.80 while having a maximum of 40% in illiquid investments. With an appropriate level of risk and enough diversification across the portfolio, we can focus most of our effort on manager alpha, or excess return. Risk budgeting allows capital to compete as we search for the highest risk-adjusted returns and the best managers.
Our manager selection framework seeks a higher level of active risk and focuses on net alpha potential. We believe that managers who play in inefficient markets, have a repeatable competitive edge, and a stable aligned team will be our best partners.
As a perpetual organization we incorporate a long-term perspective in our manager selection. The average tenure of a partner in our portfolio is over 8 years.
