Venture Capital and Private Equity Assignment

One day you wake up and find yourself as CEO of a newly set up pension fund for people working for your state (under the age of 45 as of today). The government passed all its liabilities to this new fund and endowed it with 100 billion USD. Like Pontius Pilate, they washed their hands of any further responsibilities. Now it’s your job to make sure the fund can live up to its liabilities. Good luck.

The liabilities and endowment are such that you need to produce 7% p.a. for the next 20 years. 

Consider its optimal portfolio from a (1) CAPM perspective as well as from a (2) Markowitz perspective assuming two asset classes (bonds, stocks). Calculate return distributions based on market data for the asset classes and compare to your optimal portfolio. Explain the differences theoretically (segmented markets, i.e. CAPM assumptions do not apply).

Then (3) include PE, where, again, you take expected returns and risk from past data. Discuss your correlation assumptions. (4) what happens to your funding level and future strategy if you stay suboptimally invested and produce only 3% for 5 years? Discuss implications and implicit assumptions.

Your report should read like a report by the CEO written for the board members that need to sign off on your strategy. The form of your report is up to you, but you need to convince them, else you are out of your job.

 Assessment criteria: 

• depthof knowledge and understanding of key concepts and theories
• demonstratean ability to analyze critically and synthesis relevant information and theory
• innovativeand creative approach to the analysis of material
• demonstrate an ability to engage in full professional and academic communication in writtenwork 

Assessment presentation requirements:

• depthof knowledge and understanding of key concepts and theories
• demonstratean ability to analyse critically and synthesis relevant information and theory
• innovativeand creative approach to the analysis of material
• demonstrate an ability to engage in full professional and academic communication in writtenwork