An endowment fund (worth $125m) is invested in primarily invested in developed market equities Equities (60%) and Bonds (40%). There is a large cap bias within equities and a high quality and high duration bias within bonds. The endowment fund has a real required return of 4.5% per annum in real terms, of which 3.5% is annual spend (equal 3.5% of the average fund value over the previous 5 year), 0.5% as real growth in the value of the fund and an additional 0.5% as a buffer. The fund has generated 5% (in real terms) per annum over the last 10 years. The 3.5% of Spend was made each year without erosion of fund in real terms. The portfolio manager is considering adding only one alternative investment (AI) with an allocation of 10%, so that the new SAA will be 35:55:10 (Bonds:Equities:AI). The portfolio manager is trying to decide between a Venture Capital fund that invests in new ventures, primarily in the technology sector, or a Private Equity fund that invests in existing large capitalized and listed firms (in the S&P 500). The portfolio manager understands that almost all alternative investments have low or no (buy/sell or distribution) liquidity, and so the primary consideration to be chosen alternative investment must be able to diversify the risk of the SAA. Required: (i) (3 marks) Explain why Private Equity and Venture Capital funds are considered Alternative Investments since both Als invest in equities. (ii) (2 marks) Explain which alternative investment (Venture Capital or Private Equity) has a higher correlation with large capitalized equities. (iii) (1 mark) Explain which alternative investment (Venture Capital or Private Equity) is best suited for inclusion in this portfolio