) IS BURG CORRECT WITH REGARD TO HIS RECOMMENDATIONS TO THE COMMITTEE REGARDING BENCHMARKS FOR THE PENSION AND ENDOWMENT RESPECTIVELY

1.) Is Burg correct with regard to his recommendations to the committee regarding

benchmarks for the pension and endowment respectively?

A.

Pension: Correct, Endowment: Incorrect

B.

Pension: Incorrect, Endowment: Correct

C.

Pension: Correct, Endowment: Correct

Answer = B

The investor with liabilities will measure success by whether the portfolio generates the

funds necessary to pay out the cash outflows associated with the liabilities–in this case,

a defined benefit pension plan. Meeting the liability is the investment objective; as such,

it also becomes the benchmark for the portfolio. The endowment is focused on

measuring the success of its fixed-income managers and does not have a specific liability

to meet, therefore a bond market index is an appropriate benchmark.

“Fixed-Income Portfolio Management - Part I,” by H. Gifford Fong and Larry D. Guin