Make all necessary revisions and corrections to previous assignments “Individual Portfolio Project – Parts I and II.” .Combine all elements into one cohesive portfolio project.The policy statement should be 750-1,000 words (excluding graphs and charts) and must include the following information:
- An overview of the client;
- A detailed explanation of the investment policy statement, including the investment and objectives for the portfolio based on the unique needs and preferences of the client;
- A description of any investment constraints, liquidity needs, and the client’s time horizon –– be sure to incorporate knowledge from the course that may include the discussion of: expected standard deviation, risk/reward, downside deviation, present/future value of investment, etc.
- Data presented in the form of numbers, graphs, and charts — utilize the Monte Carlo illustration of outflows;
- A justification of each investment recommendation you will make to the client;
- Justification for your policy recommendations based on the principles of modern portfolio theory;
- Core allocation percentage targets and ranges;
- Tactical allocation percentage ranges; and
- Cited references.
Prepare this assignment according to the guidelines found in the APA Style Guide, located in the Student Success Center. An abstract is not required.
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Individual Portfolio Project – Part I
The Board of Trustees at UNCW oversees a modest endowment of about $100 million. The Board intends to provide a reliable revenue stream to back the University’s work for the foreseeable future. After accounting for inflation and administrative costs, the real target return for the Endowment’s investments is 5.5 percent each year. The Endowment does this by keeping a diverse portfolio of assets in several asset groups.
To guarantee that funds are invested in a way that furthers the mission of the Endowment, a formal Investment Policy Statement (IPS) has been drafted. The IPS’s overarching mission is to safeguard the Endowment’s assets by ensuring that they are invested prudently and consistently with the Endowment’s stated purpose. Investment restrictions, liquidity requirements, and the Endowment’s time horizon are all laid forth in the IPS (Chambers et al., 2020).
The UNCW has an endowment of approximately $100 million and its long-term annual real return objective is +5.5%, net of covering reasonable and appropriate charges to administer fundraising. The primary goal of this paper is to review the endowment’s spending real return objectives, administrate fee constraints and make recommendations for any changes to the 12/31/19 asset class and allocation target.
The Endowment’s goal is to maximize its investment returns within its mandated risk parameters by purchasing safe, liquid assets. Therefore, the Endowment has embraced an absolute return strategy and reduced its reliance on high-risk assets (Neeraja, & Sobanraja,2020). The Endowment’s goal is always to have enough cash to pay its expenses. Therefore it avoids or minimizes risky investments wherever possible
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The Endowment adheres to a strict spending strategy that allocates 4.5% of its total assets for expenditure and an extra 1.25 % for administrative expenses. Therefore, the Endowment must have a reserve of liquid assets equal to its annual expenditure requirements if it is to adhere to this spending strategy (Chambers et al., 2020). The Endowment also works to keep reserves liquid enough to cover emergencies like sudden increases in spending.
The Endowment has finally settled on a time horizon for its financial holdings. With a time horizon of five to seven years, the Endowment hopes to generate the actual returns it needs to fulfill its mission. For the Endowment to ensure its holdings are following its aims, it has to be able to look at the big picture and make allocation changes over a period that is longer than the time horizon of any one investment.
It is suggested that the Endowment revise its asset class and allocation objectives for 12/31/19 in light of the Endowment’s investing strategies and restrictions. The Endowment should consider raising its allocation to high-quality assets with a decent return profile and minimal risk of loss. For the Endowment to be financially stable and satisfy its obligations, it may be prudent to increase its liquidity, decrease its holdings in high-risk assets, and improve its access to liquid assets. The Endowment could also spread its money by investing in other markets and industries.
It is also advised that the Endowment adopt a long-term strategy to its investments to ensure that they are handled following the Endowment’s aims and objectives. The Endowment should regularly evaluate the performance of its assets to achieve its long-term real return targets over an investment horizon of five to seven years. The Endowment should also consider periodic portfolio rebalancing to keep its asset classes and allocation goals stable.
The Endowment might use academic journals like the Journal of Mutual Funds, the Research of Private Equity, and the Journal of Financial Services to support these suggestions (Neeraja, & Sobanraja,2020). Comprehensive and current data on several subjects, including asset allocation and portfolio management, may be found on these sites. The Endowment should also talk to its financial advisers and other professionals to ensure its money is used wisely.
In conclusion, to better correspond with its investment goals and policies, the Endowment may choose to revise its asset class and allocation targets for the year ending December 31, 2019. To guarantee the Endowment can fulfill its spending obligations, it should increase its allocation to high-quality investments with an acceptable return profile and low risk of loss, decrease its exposure to higher-risk assets and illiquid investment, and increase its level of liquidity. The Endowment should also consider adopting a long-term perspective on its investments and diversifying over a wide range of asset classes and industries. To ensure the Endowment’s assets are being managed in a way that serves its purposes, it should draw on academic resources and talk to its advisers and other professionals.
References
Chambers, D., Dimson, E., & Kaffe, C. (2020). Seventy-five years of investing for future generations.
Financial Analysts Journal,
76(4), 5-21.
https://www.tandfonline.com/doi/abs/10.1080/0015198X.2020.1802984
Neeraja, M., & Sobanraja, M. (2020). An empirical investigation on portfolio decision-making of individual investors.
Journal of Contemporary Issues in Business and Government| Vol,
26(2), 750.
https://cibgp.com/article_7773_9caf384a073eec290185367997387563
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Individual Portfolio Project – Part II
The UNCW Investment Endowment
The UNCW is a modest-sized endowment of approximately $100 million with an annual spending policy of 4.5% plus a 1.25 %/year endowment administrative fee. Therefore, the long-term annual real return objective is +5.5%, net of covering reasonable and appropriate charges to administer fundraising (Moran & Liu, 2020). This essay explains the endowment update in the context of spending, real return objectives, and administrative fee constraint. The essay will provide recommendations on what changes that could be made on the asset class and allocation targets.
The latest endowment update presented to the UNCW Board of Trustees on 10/24/19 shows that the endowment comprises various asset classes. These include domestic and international equities, fixed income, real estate, private equity, and alternative investments (Cherry et al., 2022). The total return on the endowment during FY 2019 was 8.7%, which was above the long-term real return objective of +5.5%.
The fixed income portion of the portfolio, which makes up 8% of the total portfolio, is composed of high-quality bonds with an average yield of 2.4% and a duration of 4.2 years. Therefore, the equity portion of the portfolio, which makes up 82% of the total portfolio, comprises domestic equities with an average return of 13.7% and international equities with an average return of 11.2%. Hence, the real estate portion of the portfolio, which makes up 6% of the total portfolio, comprises various types of real estate investments with an average return of 11.3%. The alternative investments portion of the portfolio, which makes up 4% of the total portfolio, comprises investments in hedge funds, private equity, venture capital, commodities, and other alternative investments with an average return of 15.2%.
Given the long-term real return objective of +5.5% and the current performance of the endowment, it is recommended that the asset class and allocation targets remain unchanged (Amel-Zadeh, & Serafeim, 2018). The current allocations align with the endowment’s long-term objectives and provide a satisfactory return. Additionally, the current portfolio is diversified across various asset classes, which helps reduce risk.
The Endowment’s assets class and allocation objectives for 2019 should be revised in light of the Fund’s investing strategies and restrictions (Amel-Zadeh, & Serafeim, 2018). There should be a greater emphasis on high-quality assets with an acceptable return profile and minimal risk of loss in the Endowment’s portfolio. To guarantee the Endowment can fulfill its spending obligations, this must consider lowering its exposure to high-risk assets and illiquid securities and raising its level of liquidity (Cherry et al., 2022). The Endowment could also spread its money by investing in other markets and commodities.
It is also advised that the Endowment adopt a long-term strategy for its investments to guarantee that its funds be handled in a way that is consistent with its stated mission and objectives. The Endowment should regularly evaluate the performance of its assets to achieve its lengthy real return targets over an investment horizon of five to seven years (Amel-Zadeh, & Serafeim, 2018). In addition, the Endowment must think about doing periodic portfolio restructuring to keep its asset class and proportion goals stable.
Based on the review of the endowment update, it is recommended that UNCW consider making changes to the 12/31/19 asset class and allocation targets. A few potential changes include increasing the exposure to alternative investments, such as real estate, venture capital, and private equity; increasing the allocation to international investments; and increasing the allocation to fixed-income investments. Research has shown that diversifying the endowment portfolio can help reduce portfolio risk while increasing returns over the long term. Additionally, increasing the exposure to alternative investments can further diversify the portfolio, potentially leading to higher returns and lower risk. Portfolio investment and asset allocation are only two of the many areas covered by these encyclopedic sources. The Endowment must also talk to its financial advisers and other professionals to ensure its money is used wisely.
In conclusion, the latest endowment update presented to the UNCW Board of Trustees on 10/24/19 shows that the endowment is composed of various asset classes and provides a satisfactory return. Given the long-term real return objective of +5.5% and the current performance of the endowment, it is recommended that the asset class and allocation targets remain unchanged. The current allocations align with the endowment’s long-term objectives and provide a satisfactory return. Additionally, the current portfolio is diversified across various asset classes, which helps reduce risk.
References
Amel-Zadeh, A., & Serafeim, G. (2018). Why and how investors use ESG information: Evidence from a global survey.
Financial Analysts Journal,
74(3), 87-103.
https://www.tandfonline.com/doi/abs/10.2469/faj.v74.n3.2
Cherry, S. T., Prentice, C., Roberto, A., & Hunter, J. (2022). Resilience in Nonprofit and Public Organizations: A Case Study on Mutually Beneficial Community Engagement.
Collaborations: A Journal of Community-Based Research and Practice,
5(1).
https://collaborations.miami.edu/articles/10.33596/coll.99/print/
Moran, M. T., & Liu, B. (2020).
The VIX Index and Volatility-Based Global Indexes and Trading Instruments: A Guide to Investment and Trading Features. CFA Institute Research Foundation.
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