I thought that endowment risk tolerance was generally above average because of the long life and generally low liquidity needs. However, Schweser says in response to one question that the average endowment has average risk tolerance, presumably using “average” relative to other endowments. Is Schweser right?
most of the time it would be above ave with a potentially infinite time horizon. times where it would be perhaps average- if the whole endowment value was small, or if there was maybe some large relative to the size of the portfolio need for a cash expenditure in the near term.
Relative to other main institutional forms covered in CFAI materials (foundations, insurance companies, banks…), endowments have the highest risk tolerance because of - flexible liquidity needs/no spending restrictions (to get tax free) - Long timeframe. - Tax free status. - Relative low return requirement (if not large percentage of spending budget depending on the return of the endowment).
it depends if relative to other endowment percentage to budget recent performance smooth policy current spending below or above average rate
25% to budget will be deemed as below average risk tolerence (based on 2015 PM Mock)