When doing time horizon for things like foundations usually the practice exams I have done would say long term (into Perp) unless there is a spend down provision. However, when seeing examples on say a bank it seems to imply the time horizon is more linked to the liability you are matching (which is shorter term), even though a bank itself would in theory be operating for ever (unless going concern issue). So which is it, focus on the fact that the portfolio itself is evolving and will continually have new liabilities to match and new assets (this would mean almost anything is very long term) or focus on the specific liabilities at the time? I think I have seen similar issues with a question involving property and casualty (but dont think these are CFAI)… Thoughts?
You can view foundations and endowments as having perpetual time horizons absent a unique circumstance. However, a bank, much like a pension, sets its asset allocation policies using the asset-liability framework whereby they invest in assets to match the economic exposures of the liabilities. As such, banks and pension plans have time horizons that match the duration of these liabilities.
askajan Wrote: ------------------------------------------------------- > You can view foundations and endowments as having > perpetual time horizons absent a unique > circumstance. Endowment is always in perpetuity, unless organized as the so-called “fund function as endowment (FFE)” which is a quasi-endowment and does not have to exist in perpetuity, not like endowment. Foundations can have limited lifetime depending on mandate
Just taking it a step further, think about the liabilities that each institution has to service. I think you need to think in terms of are they managing the portfolio to a liability or potential liability (ALM - hence shorter time frame - like a bank or insurance company) or are they managing the portfolio to a set spending rate (more likely Asset only and a time horizon that is in perpetuity - like an endowment or foundation).