This means that most endowment-style investors do not employ a ‘set and forget’ approach to asset allocation. These investment policies must be revisited, tested and again be proven worthwhile.

Investors should also take into account the emergence of new asset classes which can help in meeting their objectives.

More recently, institutions have broadened their view of asset allocation to one which classifies assets according to the roles they perform in portfolios, rather than the asset class they belong to.

“What we have seen more recently is investors taking these traditional asset buckets and acknowledging more explicitly the role they play in the portfolio.”

This progression, from asset class silos to roles, has resulted in Cambridge clients segmenting their portfolios into four categories: growth, macro-hedging, diversifiers and cash as “dry powder” to make opportunistic investments, Urie said.

These days, endowment investors are keeping more cash at the ready to meet funding needs as well as capitalise on opportunities. Distressed credit was a big opportunity in the past two years, but “there is no table-pounding buy out there now”, Urie noted, adding that leading US endowments have only changed their investment policies “at the margins”.

For investors seeking more macro protection at the expense of growth, Urie offered a reminder: “The more you put into the macro-hedging asset classes, the more you take out of the long-term growth engine of equities.” In other words, an institution does not need to focus on how it will earn what it needs to spend while also preserving the purchasing power of its portfolio.

Investors should also keep watch for asset bubbles. There are some expressions, which resurface from time to time, that should stop them in their tracks: new paradigm, new era, new age. Urie saw them as prompts to thoroughly check market fundamentals.

“When things start to get two-to-three standard deviations away from the long-term, and you begin to hear talk of a new paradigm, you have to step back and ask yourself if you believe it, and if you do, then why.”

Asset bubbles are strange phenomena, and have few parallels outside investment markets. In supermarkets, for example, if popular goods increase in price, demand naturally pulls back as consumers tire of paying higher prices. “But in markets, when prices go up, people buy more.”

Conversely, when goods are cheap, shoppers rush in to buy. “But when markets are falling and risk has been beaten out of the system, people are fearful.”