CORPFIN 3501 Portfolio Theoryand Management- Invited proposals will demonstrate

Generate Capital Market Assumptions (CMAs): of the assignment

Invited proposal will create CMAs (returns only) using (i) historical average (from section 2 above), (ii) James Stein estimates, and (iii) Reverse Optimisation. Teams will ONLY use returns data from Q2, 1994 to Q1, 2020 for the estimates. Teams will then decide (with a one sentence justification) upon the most reasonable return CMA for each asset/sub-asset. 

Create 3 Strategic Asset Allocations (SAAs): 25% of the assignment mark: The SEF’s BoD would like to evaluate three different SAA, using three different portfolio construction techniques. Each asset allocations will be constructed using (i) quarterly real returns, (ii) data from Q2 1994 to Q1 2010 [do not use data up to Q2 2021], and CMA return estimate (based on section 3 above). Investment team will decide and justify an appropriate level of tracking error (against the Benchmark). Allocations to each asset must be whole numbers (for example a 9.5% allocation to US should be changed to either 9% or 10%), and allocation to each asset class – Bonds, Equities Real Estate and Goldmust be in multiples of 5% (for example a 24% allocation to equities must be changed to 25%). These allocations adjustments may be programmed OR can be adjusted manually.

 

Strategic Asset Allocation (SAA): Invited proposals will demonstrate the viability of the proposed SAA by conducting Backtesting and Out-ofSample Testing (to show the performance of each SAA over a period NOT used in the initial creation of the SAA). The proposal will conduct these tests with real (not nominal) returns on the three asset allocation and by using quarterly rebalancing. Test will use a starting value of $125m and each test will compare the three SAAs (both qualitative and quantitative) and by making the Spend and the Payment of Management Fee in Q4 of each year (Spend is limited to ensure the preservation of fund value). Invited proposals will demonstrate comparison between SAAs using well-labelled graphs and tables.