Can someone explain why endowment risk tolerance increase or decrease with incresed infaltion with respect to Real expected return and liqiid assets?
Guidelines answers have given both view abt this. But exactly what point we need to mention to get this correct?
…don’t know what question you are talking about, but endowments are supposed to ‘do something specific’.
like - pay for all my grandchildren’s education - so a specific goal.and a specific cost.
inflation will impact the cost of the goal, and also the variance of the goal. (risk matching).
however if the goal was “pay for healthcare”, then maybe you assume there is less inflation in healthcare (vs. education) so take less risk.
cfai always bundle up adjustments to make you think a little. no hard & fast rule.
Higher inflation should increase the appetite for return, and consequently, for risk.