1

Time Horizon Enter number Score

Time Horizon of the Fund 10 (>10 yrs.) 6 (6 to 9 yrs.) 1 (< 5 yrs.)

Likelihood Principal will be Accessed for Special Needs – e.g. deposit on new office building purchase 5 (< 33% chance) 3 (34 – 66% chance) 1 (>66% chance)

Transfers to and Withdrawals from Fund

Variability of Annual Contributions to Fund 5 (Smooth, Consistent) 3 (Unpredictable) 1 (No Transfers)

Variability of Annual Withdrawals from Fund 5 (Consistent) 3 (Subject to Change) 1 (No Pattern)

Annual Withdrawal Rate 10 (> 5.5%) 6 (4 to 5.5%) 3 (< 4%)

NCMA’s Status

Are NCMA’s objectives sustainable independent of the Investment Funds? 10 (sustainable)

6 (Impacted but Sustainable) 1 (Not Sustainable)

Total Score

Risk Posture Assessment for AssociationsThe National Contract Management Association -NCMA Unrestricted Reserve Fund

Risk Tolerance (Ability to Take Risk) – See Definitions on slides 2 and 3

2

Definition and Objective of Questions

Time Horizon

 

Time Horizon of the Fund: Time horizon is a key factor in the determination of any investment strategy. While most associations are intended to be perpetual in nature, some may have a defined termination date. When the time horizon is short the ability to take risk with the assets is lessened.

 

Likelihood Principal will be Accessed for Special Needs: This consistency enables the establishment of an asset allocation appropriate for the level of withdrawals. The greater the likelihood of additional withdrawals, the less risk the investment can tolerate.

 

3

Contributions and Withdrawals

Variability of Annual Contributions to Fund: Contributions into funds serve to reduce the effect of withdrawals on the growth of fund assets. The consistency of contributions implies the degree in which contributions can be counted to provide the offset.

 

Variability of Withdrawal Rate: One of the primary objectives in determining the appropriate asset allocation is to match the withdrawal rate to the expected return potential of an asset allocation. A consistent withdrawal policy provides much more certainty as to the level of return required to meet the investment objectives. If there is no pattern to the withdrawals, the fund may not be able to accept as much investment risk.

 

Annual Withdrawal Rate: The withdrawal rate establishes the minimum investment return required to maintain the asset level. In addition to the withdrawal rate, the target investment return musty also cover expenses and inflation. As a result, a higher withdrawal rate implies the need for more equity. This question recognizes the relationship between the withdrawal rate and the implied level of equity to sustain a long-term pool of assets.

Recipient Organization’s Status

Are the recipient organization’s objectives sustainable independent of the Investment Fund? : If the association is not dependent on withdrawals from the fund the investments can remain focused on the the long-term sustainability of the fund. If, however, the association’s continued existence requires periodic withdrawals from the fund, this factor would imply a change from a purely long-term perspective.

Definition and Objective of Questions

4

Risk Preference (Willingness to Take Risk) – See definition on slide 5

Enter selected number and delete others

Primary Goal

Our primary goal is to protect the value of assets. 1 2 3 4 5 Our primary goal is to achieve a high rate of return on assets.

Short-Term Losses

We should try to minimize the risk of short-term investment losses.

1 2 3 4 5 We should be willing to tolerate short-term losses in order to achieve higher long-term returns.

Withdrawal Rate Flexibility

We should be willing to accept lower funds available to spend in order to:

• Reduce volatility in asset value; and• Avoid the probability of large losses under the “worst” case scenario

1 2 3 4 5 We should be willing to tolerate somewhat higher volatility in funds available to spend and incur some risk of large losses, in order to grow assets and increase future funds available to spend under the most likely scenario.

Withdrawals Relative to Contributions (answer only one of the sets of questions)

If the annual withdrawal rate - annual contributions < 2% Our contributions offset much of our annual withdrawals so we should take less risk with the investments to protect the current assets

If the annual withdrawal rate – annual contributions = or > 2% Our annual withdrawals are not significantly offset by contributions so we should invest to:

•Protect the current assets; and •Accept a reduced opportunity to growth the assets

1 2 3 4 5

1 2 3 4 5

Since our contributions offset much of our withdrawals, we should invest to grow the assets to increase the funds available to spend in the future

Since contributions do not offset our withdrawals, we should invest to grow the assets to increase the funds available to spend in the future

Total Willingness Score

Risk Posture Assessment for AssociationsThe NCMA Unrestricted Reserve Fund

5

Willingness to Take Risk

Two statements are provided which make mutually exclusive statements. Using the scale provided, select the number which indicates your organization’s preference regarding the statements. A 1 implies that the statement on the left accurately expresses the organization’s philosophy. A 5 implies that the statement on the right fully reflects the organization’s philosophy. Scores of 2, 3, 4 indicate a comfort with one of the statements but only to a degree.

Definition and Objective of Questions