NO.PZ202205190400000102
问题如下：
Q. Discuss actions that Grides should take to alleviate Brodka’s concerns.解释：
SolutionAs a result of the allocation changes, there will be a reduction in the liquid and semi-liquid categories and an increase in the illiquid category under both normal and stress conditions. The proposed allocation shifting 5% of the endowment’s investments from liquid to illiquid assets would result in an increase in the overall illiquidity profile.
Regarding Brodka’s concern about the liquidity profile, Grides needs to ensure that even under stress conditions the proposed allocation continues to comply with the liquidity budgeting framework in place. From an ongoing management perspective—and particularly at times when the liquidity profile of the proposed allocation is closer to the minimum thresholds set through the liquidity budget—Grides should plan to closely monitor the portfolio’s liquidity profile and stress test it periodically to make sure portfolio liquidity remains adequate.
Regarding Brodka’s concern of risk profile “drift,” illiquid assets carry extremely high rebalancing costs. Because asset liquidity tends to decrease in periods of market stress, it is important to have sufficient liquid assets and rebalancing mechanisms in place to ensure the portfolio’s risk profile remains within acceptable risk targets and does not “drift” as the relative valuations of different asset classes fluctuate during stress periods. Since liquid assets will decrease due to the proposed allocation, Grides must ensure an effective rebalancing mechanism is adopted prior to the investment and is consistently followed thereafter. That mechanism can either be through a systematic discipline, such as calendar rebalancing or percent-range rebalancing that set pre-specified tolerance bands for asset weights. Or, an automatic rebalancing method can be adopted, such as by using adjustments to a public market allocation that is correlated to a private market allocation (likely a more illiquid exposure) to rebalance private market risk.
Contrary to its desired intent, and providing grounds for Brodka’s concerns, this design would exacerbate the endowment’s liquidity needs in severe market downturns. Given the possibility of such adverse events within Kemney’s long-term planning horizon, the policy is very relevant as potentially introducing undesired risks.
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