Foundation - difficult risk objective question

CFA Level III Portfolio Management
#1

Came across this on a FinQuiz mock. What do you guys think?

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My answer: risk tolerance is average, as 1) high liquidity constraint resulting from putting aside $10MM per annum ($10 out of $35MM portfolio is a significant amount); 2) $5MM of the portfolio is in the form of stock in that music record company, with the CEO forbidding the fund to diversify away from it. These factors are offset by a) long-time horizon as there is no spend-down requirement, and b) carry-back and carr-yforward allowances.

Their answer: In the absence of any requirements to spend down the fund’s budget over a predefined period of time, the foundation has an indefinite time horizon. Therefore, the MF has an above average ability to tolerate risk.

Your thoughts?!

#2

is it the foundation or the endowment that the risk tolerance is sought?

From what I gather, they have 10m in reserve which represents 20% of the annual spending from portfolio = $50m spending, If 5% is the annual spending budget then backing into the total portfolio value = 50m/5% = $1,000,0000

This question is terrible IMO.

#3

Didn’t even notice they threw two institutions in there, in my late night studying. Terrible question, agreed.