A university Endowment Fund is evaluated using Top-Down and Bottom-Up analysis, and against a 40:60 (Bonds:Equity) benchmark. The evaluation used the Fund and Benchmark performance over a 1-year period and the results are provided below in annualised terms.

Excess Returns and Volatility:

Average Excess returns above risk free Volatility

Fund 14.3% 25.6%

Benchmark 12.9% 16.9%

Regression of weekly excess fund returns (Fund return - risk free return) regressed against excess benchmark returns (benchmark return - risk free return) are presented below:

Alpha Standard error (Alpha) Beta Standard Error (Beta) SD (Error)

Fund-1.27% 0.95% 1.74. 65% 19%

Bottom-Up Attribution Analysis Results

Selection Effect = -1.1%

Allocation Effect = 2.5%.

You are required to:

a) ( 2 marks)Explain why the Top-Down alpha does not equal the over/under performance of the Endowment fund through Bottom-up analysis.

b) (2 marks)Explain if the Endowment Fund's portfolio manager hasskills to outperform the benchmark consistently in the future? (You can use 1.96 as the 95% two-tail T-statistic for your answer. T-statistics for Alpha = Alpha/Standard Error of Alpha)

c) (2 marks)Given all the information above, what do you think is the defense:growth (Bonds:Equity) bias of the Endowment fund. Provide justification to support your answer.