NO.PZ2022122801000006
问题如下：
Rohan Roggen is the founder
of a successful business in Europe. Roggen also created the Roggen Family
Charitable Foundation (RFCF) to fund projects in perpetuity that will provide clean
drinking water in developing countries.
RFCF’s current
portfolio is valued at EUR 250 million, with 50% in equities and 50% in fixed income.
The portfolio’s equity holdings are in a fund tracking a broad index of EUR-denominated
stocks; the fixed-income holdings are in a fund tracking an all-maturity index of
EUR- denominated government bonds. Roggen rebalances the foundation’s portfolio
every six months.
Roggen hires
Michaela Loucks, an investment consultant, to advise on RFCF’s asset allocation
and investments. Roggen explains that he wants the foundation to achieve the
following objectives:
Spend at least 3% of the fund’s
beginning value on projects each year in order to satisfy a legal requirement.
As part of this annual distribution, spend at least EUR 5 million
(inflation-adjusted) each year on projects in emerging countries in Europe.
Minimize the likelihood of a decline in the portfolio’s value of
more than 10% in any single year.
Loucks recommends
that RFCF establish an IPS and globally diversify its portfolio. She discusses
with Roggen the asset-only (AO) and asset/liability management (ALM) approaches
to setting RFCF’s policy asset allocation.
A. Discuss why each of the
following approaches could be appropriate in setting RFCF’s policy asset
allocation:
i. AO
ii. ALM
选项：
解释：
i. AO
There are three
reasons why AO could be appropriate; only one is needed for credit.
RFCF’s minimum spending rate
(3% of fund value) is not liability-like because it is stated as a percentage
of the fund’s beginning value, so absolute spending is reduced if there is a
decline in the portfolio. This contrasts with spending that is based on a fixed
amount, which does not fluctuate with portfolio value.
Roggen’s desire to limit declines in portfolio value to less than
10% is not related to spending (the liability stream), but rather only to the
value of the portfolio.
AO would improve the likelihood of the foundation being able to
operate in perpetuity because it typically invests more in higher-returning
equities.
ii. ALM
The desire to
spend at least EUR 5 million (inflation-adjusted) each year supports the use of
ALM because this spending is a fixed amount. By considering this minimum
spending requirement as a liability, the policy asset allocation can minimize
the uncertainty related to funding this requirement. In an AO approach, this
liability is ignored or assumed to be zero.
AO use the MVO to maximize utility based on given return and minimize the total risk. It would provide a diversification. Since the foundation spend at least 3% of the fund’s beginning value on projects each year in order to satisfy a legal requirement. Even if the return is low or negative for the previous year. The next year spending is adjusted by the beginning value on projects each year.
AO is suitable for foundations which has greater risk tolerance and operate in perpetuity because AO always invest in higher risk asset.
Foundation is targeted to minimize the likelihood of a decline in the portfolio’s value of more than 10% in any single year. It is not a legal liability so using AO is appropriate.
ALM is to match the liability to asset. It would decrease the risk of shortfall. It would invest majority of asset into fixed asset. It would decrease the total risk and minimize the likelihood of failing to spend at least EUR 5 million (inflation-adjusted) each year on projects in emerging countries in Europe.