What is the typical minimum spending requirement for an endowment fund, and how should the investment manager treat the investment portfolio to cover these needs? A. 2%; this part of the portfolio should be invested in moderately liquid assets. B. 5%; this part of the portfolio should be invested in a homogeneous mix of assets focusing on short-term assets. C. 5%; this part of the portfolio should be invested in very liquid assets.

The correct answer is C.Endowment funds have minimum spend requirements, typically 5% of assets, to prevent them from taking in contributions but not spending anything on the charitable or educational purpose. In the case of such a requirement, the investment manager should invest this portion of the portfolio in assets quite liquid – easily convertible to cash. This would all be part of the liquidity constraint within the IPS.

CFA Level 1 Question Of The Week - Portfolio Management (7) - CFA Level 1

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  04 Aug 2019 at 9:41 am
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  The correct answer is C.
  
  Endowment funds have minimum spend requirements, typically 5% of assets, to prevent them from taking in contributions but not spending anything on the charitable or educational purpose.
  
  In the case of such a requirement, the investment manager should invest this portion of the portfolio in assets quite liquid – easily convertible to cash. This would all be part of the liquidity constraint within the IPS.
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