Hugh Donovan is chief financial officer (CFO) of Light Speed Connections (LSC), a rapidly growing U.S. technology company with a traditional defined-benefit pension plan. Because of LSC's young workforce, Donovan believes the pension plan has no liquidity needs and can thus invest aggressively to maximize pension assets. He also believes that Treasury bills and bonds, yielding 5.4 percent and 6.1 percent, respectively, have no place in a portfolio with such a long time horizon. His strategy, which has produced excellent returns for the past 2 years, is to invest the portfolio as follows:
50 percent in a concentrated pool (15 to 20 stocks) of initial public offerings (IPOs) in technology and Internet companies, managed internally by Donavan.
25 percent in a small-cap growth fund.
10 percent in a venture capital fund,
10 percent in an S&P 500 index fund,
5 percent in an international equity fund.
(Working with LSC's Investment Committee, the firm's president, Eileen Jeffries, had produced a formal investment policy statement, which reads as follows:

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Alternative Asset Allocations and Current Portfolio Asset Portfolio A Portfolio B Portfolio C Current Portfolio S&P 500 Index PO/tech portfolio Small-cap growth fund International equity fund Venture capital fund Money market fund Corporate bond fund 25% 20 26 35% 10 19 15 10% 50 25 16% 10 16 10 10 Total Expected retum Standard deviation 1 00% 166% 26,7% 1 00% 22.1% 384% 14 100% i 33% 19.8% 100% 262% 552%