You are a portfolio manager and senior executive vice president of Advisory Securities Selection, Inc. Your firm has been invited to meet with the trustees of the Wood Museum Endowment Funds. Wood Museum is a privately endowed charitable institution that is dependent on the investment return from a $25 million endowment fund to balance the budget. The treasurer of the museum has recently completed the budget that indicates a need for cash flow of $3 million in 2022, $3.2 million in 2023, and $3.5 million in 2024 from the endowment fund to balance the budget in those years. Currently, the entire endowment portfolio is invested in Treasury bills and money market funds because the trustees fear a financial crisis. The trustees do not anticipate any further capital contributions to the fund.

The trustees are all successful businesspeople, and they have been critical of the funds previous investment advisers because they did not follow a logical decision-making process. In fact, several previous managers have been dismissed because of their inability to communicate with the trustees and their preoccupation with the funds relative performance rather than the cash flow needs.

Advisory Securities Selection, Inc., has been contacted by the trustees because of its reputation for understanding and relating to the clients needs. The trustees have asked you, as a prospective portfolio manager for the Wood Museum Endowment Fund, to prepare a written report in response to the following questions. Your report will be circulated to the trustees before the initial interview on June 15, 2022.

Explain in detail how each of the following relates to the determination of either investor objectives or investor constraints that can be used to determine the portfolio policies for this three-year period for the Wood Museum Endowment Fund.

1) With an endowment portfolio of $25million and cash flow needs for the next 3 years (the 11th and 12th editions show different years, but the same cashflow amounts), calculate the required rates of return objective for each of the next 3 years, assuming that the earnings generated each year are enough to pay the budget cashflow needs and leave the $25million invested to continue growing. 2) What is the Investment Horizon here? Is it part of the objective, or a constraint? 3) Assess Wood Museum on the constraints we have seen in the Investment Process framework. What is its Risk Tolerance or sensitivity to risk? What is its need for Liquidity? What are Wood Museums tax considerations, if any? Are there any regulatory or legal issues to consider? Are there any unique needs or circumstances to consider? 4) Comment on the required rates of return vs. how the portfolio is invested.