CAP Investment Management & Endowments

Question 1

What is the primary purpose of an Investment Policy Statement (IPS) for a charitable foundation?

Accepted Answer

To document investment objectives, constraints, and guidelines for managing assets

Answer

To satisfy annual IRS reporting requirements

Answer

To restrict trustees from making independent investment decisions

Answer

To maximize short-term portfolio returns

Question 2

Under the Uniform Prudent Investor Act, foundation trustees are required to:

Accepted Answer

Manage investments with reasonable care, skill, and caution evaluated at the portfolio level

Answer

Invest exclusively in government-backed securities

Answer

Achieve returns above market benchmarks each year

Answer

Avoid all investments that carry any degree of market risk

Question 3

Which spending rate range is generally considered sustainable for a permanent endowment seeking to preserve purchasing power over the long term?

Accepted Answer

4–6% annually

Answer

1–2% annually

Answer

8–10% annually

Answer

12–15% annually

Question 4

Which investment vehicle allows a foundation to align portfolio holdings with its philanthropic mission while still seeking market-rate financial returns?

Accepted Answer

Mission-related investments (MRIs)

Answer

U.S. Treasury bills

Answer

Money market funds

Answer

Savings bonds

Question 5

Private foundations must distribute what minimum percentage of their net investment assets annually to maintain tax-exempt status?

Accepted Answer

5% of net investment assets

Answer

3% of total gross assets

Answer

7% of net investment income

Answer

10% of all assets including illiquid holdings

Question 6

In endowment management, 'asset allocation' refers to:

Accepted Answer

Dividing a portfolio among different asset classes such as equities, fixed income, and alternatives

Answer

Distributing grant funds to nonprofit beneficiaries

Answer

Legally transferring assets into a charitable remainder trust

Answer

Assigning investment management duties to specific staff members

Question 7

Socially responsible investing (SRI) as applied by philanthropic advisors is best described as:

Accepted Answer

Screening and selecting investments based on environmental, social, and governance (ESG) criteria

Answer

Investing only in domestic U.S. companies to support the local economy

Answer

Donating all investment returns directly to charitable beneficiaries

Answer

Investing exclusively in nonprofit organizations and social enterprises