Case Study in Risk Management: Endowment

Free CFA Level III: Portfolio Management lesson in Case Study: Endowment. 33 min read, ~4,889 words.

Required return = spending rate + inflation + costs; most endowments need 7-8.5% nominal, which cannot be met by low-yielding bonds and so drives equity-heavy allocations. Smoothing rules stabilize distributions but can cause overspending during prolonged declines; monitor the effective spending rate versus target. A long horizon justifies the illiquidity...