Who has greater tolerance of risk? Who can invest in illiquid assets like PE more?
endowment generally have higher risk tolerance due to the ability to alter spending. private foundations generally have a spending requirement of 5% that needs to be met regardless of portfolio performance. Private equity is more suited for endowments. both can be moderate to high risk tolerance, but I’d say endowments in general can take on more risk
but you really need to read the question details carefully. if an endowment is 90% responsible for providing funding for an organizations operating expenses then the risk tolerance is significantly reduced to probably below average. if it provides 5% of operating expense or just provides grants then there’s much more flexibility.
i dont think this is always the case and depends on the facts. Is there someplace in the text that says endowment risk tol is higher generally? You may be right but I dont take comments on AF as gospel and rather see it in the text. Clearly both of these entities have > risk tol vs. pensions and banks. But not sure which between the two.
Yes it says Endowment has greater than foundation. Thanks