A multi-criteria decision model for fixed income sector allocation for endowment funds

Bond investing requires decision-making on multiple levels. Some criteria are qualitative, some are quantitative, and there may be conflicting objectives such as avoidance of credit risk versus need for income. Since managers of endowment funds must allocate their assets based on numerous dimensions, a multi-criteria decision model can help to evaluate competing criteria. We describe the Analytical Hierarchy Process (AHP), which allows investors to integrate multiple decision criteria, and apply the model to the sector allocation problem faced by managers of endowment portfolios. The AHP gives rise to a flexible model for bond investors for a range of economic scenarios, risk profiles, and time horizons.