The Chief Investment Officer preparation report to the IPC

This is an assignment that discusses the Chief Investment Officer preparation report to the IPC. The paper also discusses the optimal allocations of sub-period 1.

The Chief Investment Officer preparation report to the IPC

I‌‌‍‌‌‍‍‍‌‍‍‌‍‍‍‌‌‌‍mportant: Attach Templates (#1-5) to the report as Appendix #1. Now, prepare the Report assuming you are submitting it to your boss who is the Chief Investment Officer (CIO) of a University Endowment Fund. Your boss wants you to provide research support (results and analysis) so that she can address the following issues/questions/concerns that the Investment Policy Committee (IPC) has asked or would probably ask. Thus, the objective is to help the CIO to answer questions from the IPC regarding asset allocation for the Fund. The Endowment Fund pays out 5% a year (the spending rate) to the University for operating expenses.

Question

a) The CIO has sent some of the results you have done above to the IPC. Thereafter, the members of the IPC perused the results, some of them asked the CIO to explain why the equal-weighted portfolio under performed the mean-variance optimal portfolio for the periods studied. Explain to the CIO using only the whole period results.

b) The IPC has noticed that the optimal allocations of sub-period 1 and sub-period 2 are very different‌‌‍‌‌‍‍‍‌‍‍‌‍‍‍‌‌‌‍. (based on different scenarios of target returns and investment limits). They asked why. Also, would you please explain to them?

c) Recently, the Fed has held off raising the interest rate. How would a change in the risk-free rate affect the portfolio performance? However, explain to the CIO using your results.

d) The CIO wants to propose investment limits on certain asset classes to the IPC for consideration, but the CIO may not be aware of the likely impact on the performance of the Fund. Since you have run some analysis above based on the proposed limits, present your analysis. Also, make a recommendation regarding investment limits for the historical arithmetic average (target) return and the 9% p.a. target return.

Lastly, for your reference, see the paper titled “The Impact of Constraints on Minimum-Variance Portfolios” by Chow, Kose and Li in Financial Analysts Journal, Volume 72, Number 2, pp. 52-70. (Note: You must use ALL of the results from your analysis above to support your answers for these 7 questions (a-g) for full cre‌‌‍‌‌‍‍‍‌‍‍‌‍‍‍‌‌‌‍dit.)