Foundations
Does the current income generated by a portfolio need to be at least equal or great than the annual grants amount? i.e. 5% of foundation assets need to be paid out in grants each year. Would we need a portfolio to generate at least a 5% income return? Also is that 5% of grants considered a liquidity need? In my schweser examples it didn’t list it as one, where as I thought it should have. Thanks!
The return requirement is always a liquidity need, but saying that is kind of stating the obvious. If there are no distinct liquidity needs you can always repeat return requirement in the liquidity section without risking anything.
For exam purposes yes the requirement is getting the 5% plus inflation plus any fees and expenses. No need for cushions etc.
That’s what I thought, but in the answer it didn’t list that as a liquidity need which confuses me. It also selected a portfolio allocation that provided an income return under the 5% req. for grants. So everything you mentioned (that I agree with) was not part of the correct answer according to Schweser
To piggyback on this…when selecting an asset allocation does the foundation need at least 5% in cash like instruments if they don’t have a large inflow coming in already?
Any help?
I agree with Kroki.
And, mostly I successfully solved Foundations and Endowments questions in AMs by manner described above. I didn’t correctly solve it in Schweser Mock. Maybe I am biased, but seems this is not only my experience given your posts. Luckily, Schweser will not prepare the real exam questions.