I. General Instructions 1. Index data is provided in the Assignment module and is adequate to complete the assignment. The data is provided from Q1 1997 to Q XXXXXXXXXXnote that the CPI data for Q1...

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I. General Instructions 1. Index data is provided in the Assignment module and is adequate to complete the assignment. The data is provided from Q1 1997 to Q1 2020 (note that the CPI data for Q1 2020 is not provided and will be updated as soon as it is made available). Please do read the labels for each series as some series are already in % format, for example Fixed Income Securities indexes. 2. Students should familiarize themselves with the communication skills guide (attached in the Assignment Module). 3. A maximum word count for each section is provided. You are required to provide a word count for each section to show that you have not exceeded the limits. II. Assignment Brief The Green Field Foundation was setup in 1998 by philanthropist James Morrison with the objective of providing agricultural aid and education across the emerging markets. The foundation is tax exempt and is currently worth US$100m. Current portfolio was allocated as below. ( Asset Classes Allocation Fixed Income Securities (US) 20% Equities (US, EAFE, Emerging) 40% Real Estate 10% Hedge Funds 10% Private Equity & Venture Capital (50:50) 10% Commodities 10% Total 100% )Asset Allocation for Green Field FoundationAllocation to Fixed Income Securities Government 10% Corporate Investment Grade 10% Allocation to Equities US Equities 20% Developed market ex US (EAFE) 10% Emerging Markets 10% The foundation investment objectives are to generate real return of 4% per annum over a rolling 3-­‐year period. A spending rule of 3% of the average of last 3 years’ fund value (as of 31st December) was established by the previous portfolio manager who also charged a standard (for the industry) 0.5% per annum of the fund’s end-­‐ of-­‐the-­‐year value. Analysis of the spending policy shows that the amount received by the Foundation was highly variable. The foundation fund committee has concluded a 35:65 [defence:growth] bias is adequate to ensure long term growth as well as maintain appropriate risk to achieve those investment objectives without impacting the real value of the fund over a 3 year rolling period. The committee would like to grow the fund in real terms but not at the expense of substantial increase in risk. III. Specific Sections 1. Investment Objectives (up to 10% -­‐ maximum 100 words): Provide a clear investment return and risk objective. Return objectives should be presented in an equation and such that the real and the nominal required return for the endowment are clearly specified. Risk objective should be specified by a minimum of two measures: (i) volatility, and (ii) Value at Risk at 95% (parametric or non-­‐ parametric). 2. Create Alternate Asset Allocation(s) (up to 30% -­‐ maximum 600 words): You will create three new asset allocations using (i) 3 year moving average of real returns, and (ii) data from Q1 1997 to Q1 2010 [do not use data up to Q1 2020]. Allocations must be whole numbers and in multiples of 5 in % terms (eg. 10% not 9.5%). You are not required to program this in excel but should be adjusted manually. Equities and FIS asset classes will be created using the allocations in tables “Allocation to Equities” and “Allocation to Fixed Income Securities” using quarterly rebalancing. Private Equity and Venture Capital must also be combined on a 50:50 basis. i. A Solver-­‐based strategic asset allocation using only the quarterly data provided and based on the 6 asset classes/groups only, which are detailed in the table titled “Asset Allocation for Green Field Foundation”. Basic constraints will include: a) No leverage or short-­‐selling b) Required return set based on the return objective. c) Ensure the growth:defence bias as mentioned in the foundation brief. d) A minimum allocation of 5% for asset class ii. A “Most Diversified Approach” based asset allocation and based on the 6 asset classes/groups, which are detailed in the table titled “Asset Allocation for Green Field Foundation”. iii. An Optimised Risk-­‐parity based asset allocation and based on the 6 asset classes/groups, which are detailed in the table titled “Asset Allocation for Green Field Foundation”. For each allocation, you must provide a short qualitative and quantitative comparison against the benchmark (Current) asset allocation. Quantitative comparison will compare Sharpe’s ratio and downside risk measure(s), while the qualitative comparison will discuss the quantitative comparison. 3. Asset Allocation Testing (up to 50% -­‐ maximum 1000 words): You will conduct two tests using real data (by subtracting out inflation from each time series) and each asset allocation will have a starting value of $100m. Each test will require you to provide a comparison report that will be both qualitative and quantitative on specific aspects that are mentioned below: a) A back-­‐test of the current and the three new asset allocations (Solver-­‐Based, Most-­‐Diversified and Optimal Risk-­‐parity) from the section above (using only the 6 asset classes/groups) over the entire period [from Q1 1997 to Q1 2020]. You will specifically discuss how each asset allocation performed during (i) the Tech bubble and (ii) the GFC, using business cycle information from NBER by using characteristics of the asset classes and their weightings. b) An out-­‐of-­‐sample test of the four (Current, Solver-­‐Based, Most-­‐Diversified and Optimal Risk-­‐ parity) asset allocations perform against each other over the period Q2 2010 to Q1 2020. You will specifically discuss (i) the best and worst quarter performance and (ii) the best and worst 1 year (4 quarter) performance for each asset allocation by using characteristics of the asset classes and their weightings. 4. Recommendation (Up to 10% -­‐ maximum 100 words): You will weigh the evidence from the previous section and provide a recommended asset allocation to Green Field Foundation. IV. Deliverables 1. The main report must be a single document in doc or docx format and will be submitted through Turnitin. 2. Excel spreadsheet with all the work associated with the report will be submitted through Turnitin. V. Format of Report The format of the report will follow the layout of the assignment sheet as follows: 1. Executive summary (50 words maximum) 2. Section 1 -­‐ Investment Objectives 3. Section 2 -­‐ Alternate Asset Allocation 4. Section 3 -­‐ Asset Allocation Testing 5. Section 4 -­‐ Recommendation