NO.PZ201805280100000401
问题如下：
Mark DuBord, a financial adviser, works
with two university foundations, the Titan State Foundation (Titan) and the
Fordhart University Foundation (Fordhart). He meets with each university
foundation investment committee annually to review fund objectives and
constraints.
Titan’s portfolio has a market value of $10
million. After his annual meeting with its investment committee, DuBord notes
the following points:
■ Titan must spend 3% of its beginning-of-the-year
asset value annually to meet legal obligations.
■ The investment committee seeks exposure
to private equity investments and requests DuBord’s review of the Sun-Fin Private
Equity Fund as a potential new investment.
■ A recent declining trend in enrollment is
expected to continue. This is a concern because it has led to a loss of
operating revenue from tuition.
■ Regulatory sanctions and penalties are
likely to result in lower donations over the next five years.
DuBord supervises two junior analysts and instructs one to formulate new allocations for Titan. This analyst proposes the allocation presented in Exhibit 1.
Discuss two reasons why the proposed asset allocation is inappropriate for Titan.
选项：
解释：
The proposed asset allocation for Titan is not appropriate because:
1 Given the shift in enrollment trends and declining donations resulting from the sanctions, Titan will likely need greater liquidity in the future because of the increased probability of higher outflows to support university operations. The proposed asset allocation shifts Titan’s allocation into risky assets (increases the relative equity holdings and decreases the relative bond holdings), which would introduce greater uncertainty as to their future value.
2 Titan is relatively small for the proposed addition of private equity. Access to such an asset class as private equity may be constrained for smaller asset owners, such as Titan, who may lack the related internal investment expertise. Additionally, the Sun-Fin Private Equity Fund minimum investment level is $1 million. This level of investment in private equity would be 10% of Titan’s total portfolio value. Given Titan’s declining financial position due to declining enrollments and its resulting potential need for liquidity, private equity at this minimum level of investment is not appropriate for Titan.
Liquidity and volatility consideration. A recent declining trend in enrollment is expected to continue. This is a concern because it has led to a loss of operating revenue from tuition. Regulatory sanctions and penalties are likely to result in lower donations over the next five years. All of those signal indicate the future contribution would decrease so higher liquidity and lower volatility is needed. However, Titan increased its allocation to PE fund and decreased allocation to Equity fund and bonds. It would bring lower liquidity and higher risk. It would be inappropriate.
Titan is a small foundation which has total asset of $10 million. Such small asset size would have lower alternative asset investment professions and it is hard to have resource of outside managers. Titan allocate 10% of asset to PE fund. It would be inappropriate.