Question

You have been hired by a charitable foundation to manage their endowment. They use the endowment to fund schools, both development and maintenance (e.g. annual salaries of teachers). Right now, establishing and running schools uses about 10% of the endowment every year. Thus, to simply maintain current growth, they need returns of 10%. Describe an investment policy for this foundation, including a discussion of asset allocation and the balance between the necessity for returns and for maintaining the capital of the endowment.

Answer 1

INVESTMENT Process and Policy Statement for the Foundation :

I. STATEMENT OF PURPOSE T

The purpose of the foundation to generate atleast 10 % on the capital on regular to finance the development of education . The foundation do have some expanses to run its daya to day operational activities .The document is to put forward a general framework within which the assets of the Fund can be invested with respect to efficient portfolio management. The document help in selection of different asset class along with percentage share allocation  

II. Investment purposeand objectives

• To maintain and /or increase the minimum 10% return on principal amount by maximizing total returns consistent with prudent investment practices.
• To increase the purchasing power of principle amount
• To form a frame work to maintain an appropriate source of regular liquidity,
• To create a dynamic portfolio

III. INVESTMENT PORTFOLIO

To The portfolio will be mixed of all type of asset classe to maintain an efficient risk return profile. The asset classes shall be international and high rated G-sec bonds, Large Cap Equity, Domestic Fixed Income and Cash Equivalent.

Asset Allocation
Asset Allocation	Percentage	Expected return	Risk Category
international and high rated G-sec bonds (India)	15% (+- 5%)	9-10%	No risk
Large Cap Fund Of developing Country ( India, Brazil )	15% (+- 5%)	15-20%	Low Risk
Large Cap In Domestic market	20%(+- 5%)	12-15%	Low Risk
Mis Cap FUND	10% (+-5%)	15-20%	Moderate Rick
Bonds	40%(+- 5%)	6-9%	No risk

The foundation should hire a good Portfolios management service provider registered under the Investment Advisors Act of 1940 with the Securities and Exchange Commission .

Equity Portion : the invesment in equity portion should be for longer horizon thought alteast for 3-5 years.

Rebalance Policy The above said asset allocation should be rebalance as per changes in market as and when required .