Question

You are on the Investment Committee (IC) attending the meeting on October 3, 2008.

1. What is your overall assessment of the endowment situation? What would you ask the CIO to assess in more detail?

2. The target percentage for cash was 0.0%. Does this make sense to you?

3. Should the IC continue its current commitment pace to build out the new private equity allocation strategy? Why or why not?

4. What effect will the financial crisis have on the PIF’s liquidity in your estimation?

Information:

- The endowment distributes approximately $2.25 million per month to the College to support the general operating budget and cash to fund this transfer had historically been provided by new endowment gift inflows and monthly interest/dividend distributions, i.e., not through liquidation of endowment assets.

- Given the current level of outstanding unfunded capital commitments to private equity funds, it can be assumed that the College will receive $2-3 million of capital call notices per month. Over the past several years, the capital distributions from mature private equity funds have well outpaced new capital calls.

Answer 1

a) Overall endowment situation looks satisfactory as college is receiving 2.25 m per month without even liquidating the asset or principal of Endowment.It will also receive some inflow from the private equity fund.As of now we can see the we have detail of outflow to equity fund but no detail on inflow from these fund would ask CIO to find two things

1) How much inflow we are suppose to have from equity fund.

2) What are the asset we can liquidate in the endowmwnt fund if necessary.

b)Cash can be kept at 0% if endowment can manage million of cash through easy liquidation of asset. Like if they are invested in t bills of liquid mutual fund

c)I guess that depends on kind of goal and target return required in this endowment.there is no information regarding this but if college meets more of its expenses from this endowment fund then it should not invest aggresively in Equity fund.

d)Looks like fund is investing in equity fund and do get dividend income so in case of financial crisis liquidity of the fund can be affected severely.