Asset Management of the Foundations of the City of Göteborg

Abstract

The investment policy is the primary step in portfolio management because it sets the future investment guidelines. A lot of research has focused on the relative importance of the major investment decisions - target asset allocation, market timing and security selection, and their contribution to portfolio performance. The purpose of this study is to provide deeper insights into the investment management process by evaluating the old foundations’ management policy of the City of Göteborg and determining the relevant problems with its asset allocation, performance evaluation and managers’ incentives. Due to the specific objectives of the foundations, the analysis is specially designed by constructing three portfolios under the new investment policy: a pure stock portfolio using the Markowitz portfolio optimizing technique; a pure bond portfolio using the fundamentals of fixed-income portfolio management; and a mixed portfolio presenting different risk-return scenarios. The results confirm that the asset allocation is a crucial aspect of portfolio management; however, it must be seen as a dynamic process if one is to take advantage of new market conditions and investment opportunities.