Tiêu đề Level III V5 LM01 Essay Quiz.pdf ✅

Level III Portfolio Management for Institutional Investors Essay Quiz Copyright © IFT. All rights reserved www.ift.world Page 1 TOPIC: PORTFOLIO MANAGEMENT – INSTITUTIONAL TOTAL POINT VALUE OF THIS QUESTION SET IS 12 POINTS The Leighton Foundation Case Scenario Sally Pham, CFA, is a portfolio manager at East River Advisory. She meets with the investment committee of the Leighton Foundation, headed by Jerome Lee, the investment director, to review the investment policy. Leighton Foundation supports social causes worldwide and would like to continue making contributions to these causes in perpetuity. The Foundation’s aim is to preserve the real value of its investment portfolio. To maintain its tax-exempt status, it has a minimum spending requirement of 5% (in real terms) of average asset value. The Foundation has a reasonable risk tolerance and places a limit on annual volatility of 20%. Leighton has a small in- house investment team, with management fees of 0.30% per year. The Foundation assets of US$1 billion are invested in 40% public US equities, 40% US Treasury portfolio, 10% in investment-grade developed markets bonds, and 10% in cash. Its portfolio is entirely implemented through passive investment vehicles. The current volatility of returns is 15% annually. Leighton has hired a new investment officer with experience in private equity and hedge fund investments. Pham provides the committee with the following 10-year (nominal) expected return assumptions for various asset classes: Asset Class Nominal* Expected Return Cash 2% US equities 8% Global (Non-US) equities 9% US Treasuries 3% Non-US developed markets bonds 5% Hedge funds 6% Private equity 12% *Note: Expected inflation for the next 10 years is 2%. Pham suggests a change in the asset mix by investing in alternatives. Pham also proposes direct investments and active management in public equities to provide an additional 40 bps in alpha. Pham’s recommended asset mixes are given below. Asset Class Asset Mix I Asset Mix II Asset Mix III Cash* 5% 5% 4% US equities 20% with active management 40% with active management 30% with passive management Global (Non-US) equities 10% with active management 35% with active management 40% with active management US Treasuries 5% 10% 10%
Level III Portfolio Management for Institutional Investors Essay Quiz Copyright © IFT. All rights reserved www.ift.world Page 2 Non-US developed markets bonds 5% 10% nil Hedge funds 24% nil 6% Private equity 31% nil 10% Net of fee Expected Real Return 5.980% 5.25% 5.800% Volatility 16% 16% 16% *The minimum allocation to cash as specified by Leighton Foundation’s investment committee is 4%. A. Prepare the investment objectives section of the IPS of the Leighton Foundation. Justify your response. B. Given the expected returns provided by Pham, discuss whether the current investment policy is appropriate given the investment objectives of the Leighton Foundation.
Level III Portfolio Management for Institutional Investors Essay Quiz Copyright © IFT. All rights reserved www.ift.world Page 3 C. Select the asset mix that would be most appropriate for the Leighton Foundation, given its investment objectives. Justify your response with two reasons. Recommend one way to implement the new asset allocation. • Asset Mix I • Asset Mix II • Asset Mix III