CFA CFA Level 1 CFA Level 1 Question of the Week – Portfolio Management

CFA Level 1 Question of the Week – Portfolio Management

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  • Matt_AnalystPrep
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    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.
    Matt_AnalystPrep
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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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