Mr. Franklin is 70 years of age, is in excellent health, pursues a simple but active lifestyle,and has no children. He has interest in a private company for $90 million and has decidedthat a medical research foundation will receive half the proceeds now and will be the primarybeneficiary of his estate upon his death. Mr. Franklin is committed to the foundation’swell-being because he believes strongly that, through it, a cure will be found for thedisease that killed his wife. He now realizes that an appropriate investment policy and assetallocations are required if his goals are to be met through investment of his considerableassets. Currently, the following assets are available for use in building an appropriateportfolio for him:$45.0 million cash (from sale of the private company interest,net of a $45 million gift to the foundation)$10.0 million stocks and bonds ($5 million each)$ 9.0 million warehouse property (now fully leased)$ 1.0 million value of his residence$65.0 million total available assetsa. Formulate and justify an investment policy statement setting forth the appropriateguidelines within which future investment actions should take place. Your policy statementshould encompass all relevant objective and constraint considerations. b. Recommend and justify a long-term asset allocation that is consistent with the investmentpolicy statement you created in Part a. Briefly explain the key assumptions youmade in generating your allocation.

Question

Mr. Franklin is 70 years of age, is in excellent health, pursues a simple but active lifestyle,
and has no children. He has interest in a private company for $90 million and has decided
that a medical research foundation will receive half the proceeds now and will be the primary
beneficiary of his estate upon his death. Mr. Franklin is committed to the foundation’s
well-being because he believes strongly that, through it, a cure will be found for the
disease that killed his wife. He now realizes that an appropriate investment policy and asset
allocations are required if his goals are to be met through investment of his considerable
assets. Currently, the following assets are available for use in building an appropriate
portfolio for him:
$45.0 million cash (from sale of the private company interest,
net of a $45 million gift to the foundation)
$10.0 million stocks and bonds ($5 million each)
$ 9.0 million warehouse property (now fully leased)
$ 1.0 million value of his residence
$65.0 million total available assets
a. Formulate and justify an investment policy statement setting forth the appropriate
guidelines within which future investment actions should take place. Your policy statement
should encompass all relevant objective and constraint considerations.

b. Recommend and justify a long-term asset allocation that is consistent with the investment
policy statement you created in Part a. Briefly explain the key assumptions you
made in generating your allocation.

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