Formulating Investment Policy Statement

1
Formulating Investment Policy Statement

• Ex. Mr. Franklin (Ch. 5, Q 9)
• age 70, in excellent health, no children
• Interest in a private company for 90 million
• A medical research foundationhalf of the
  proceeds now, primary beneficiary

2
Current Portfolio

• 45.0 million cash
• 5.0 million stocks
• 5.0 million bonds
• 9.0 million warehouse property
• 1.0 million Franklin residence
• ---------------------------
• 65.0 million total available assets

3
Investment Policy Statement

• Objectives
• Return Requirements
• Real growth of capital
• Tax minimization
• Risk Tolerance above average
• (acquainted with risk, still long
  actuarial life expectancy,
• in good current health, possessed of a
  large asset base)
• Constraints
• long-term, no liquidity needs

4
One example of an appropriate allocation

• Which one will be the majority? Stock or bond ?
• More real estate ? Debt ? Tax !
• Recommendation
• - Cash/Money Market 5
• - U.S. Fixed Income 15
• - Non-U.S. Fixed Income 5
• - U.S. Stocks (Large Cap) 30
• - (Small Cap) 15
• - Non-U.S. Stocks 15
• - Real Estate 15