Rivermore portfolio Essay

Decent Essays
Rivermore College

This is a mean-variance optimization case.
Software needs: Spreadsheet optimizer (Excel Solver) or use a commercial package.
Concepts: performance evaluation with historical data, forecasting asset returns, portfolio choice with input uncertainty.
Computer skills: development and/or use of a mean-variance optimizer

Roberta Tyler consultants to several university investment offices around the country.
She specializes in asset allocation studies. She has accumulated performance figures from a number of different university endowments, as well as information about the typical stocks/bonds/cash mixtures common in the endowment universe. She practices a broad policy approach which means that she makes
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Last, but not least, Weaver wanted to know whether the board should concern themselves with fundamental questions such as whether the endowment is adequate for the school's future needs. Can they continue their current policy? What if enrollment continues to decline?
In addition to these allocation decisions, Weaver wished to know whether the money managers closely followed the fixed stated objectives of the endowment. He asked
Tyler whether there was a way to address this issue.
In preparation for his initial meeting with Tyler, Weaver prepared a list of basic issues he wished her to explore.
1) How well did the Rivermore portfolio perform over the 1970-1994 period? How should performance be measured? Are their managers performing well?
2) What benchmark return should they expect from their portfolio, given their current mix of assets? What benchmark return might they expect for their current level of risk?
What is the lowest level of risk they should expect for their current level of historical return? 3) Should they consider changing their policy mix? What time period of estimation should they use as inputs to the optimization process?
4) What would be the long-term expected return of her recommended portfolio? How does this compare to the long term expected return of the current portfolio mix?
5) Use regression analysis to determine whether the historical weights on the asset classes match the policy weights.
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