Project Question - 60 Points / Marks

You are a team of portfolio managers on Investment Advisory Services INC. Your firm has been invited to meet with the trustees of the Midlands Museum Endowment Fund (MMEF). The MMEF is a privately endowed charitable institution that is dependent on the investment return of $25 billion endowment fund to balance the budget, The treasurer of the museum has recently completed a study that indicates a need for cash flows from the endowment fund of 3.0 billion in 2019, $3.2 billion in 2020 and $3.5 billion in 2021 in order to balance the budget. At the time, the entire endowment portfolio is invested in Treasury bills and money market funds because the trustees fear a financial crisis. The trustees do not anticipate any further capital contributions to the fund. The trustees are all successful businessmen, and they are been critical of the fund's previous investment advisers for not following a logical decision-making process, In fact, several previous managers have been dismissed because of the inability to communicate with the trustees and the preoccupation with the funds relative performance rather than the cash flow needs.

Investment advisory services INC has been contacted by the trustees because of it reputation for understanding and relating to its clients' needs. The trustees have specifically asked to meet with you because of your recent article in a professional journal outlining the decision-making process of your firm. In the letter of the invitation addressed to you, the trustees have included the flow chart of exhibit A (The portfolio management Process) and the following quotations from the speech by Professor William Sharpe that we included in the article

"It is important to understand that, even if the market were perfectly efficient with every security plotting right on the plane, the investment management process would still require sophisticated procedures. In particular, it would require the tailoring of portfolios to meet clients'attitude towards risk and clients' attitudes towards yield vis-a vis gains.

One important part of this exercise (modern portfolio theory) is finding what the client is all about - where one client differs from another"

Explain in detail how each of the following relates to the determination of either investor objectives or investor constraints that can be used to determine the portfolio policies for this three-year period for the MMEF also explain the processes in Exhibit A:

- Liquidity requirements

- Return requirements

- Risk tolerance

- Time Horizon

- Tax considerations

- Regulatory and legal considerations

- Unique needs and circumstances.

Exhibit A : The Portfolio Management process

1. Identification and specification of: Investors objectives, Investors constraints
2. Determination of portfolio policies
3. Integration of portfolio policies and expectational factors: Asset allocation, Investment strategies, Execution
4. Monitoring the portfolio and responding to change
5. Portfolio performance
6. Expectational factors regarding economic analysis, market analysis and individual security analysis