The fixed-income segment of a life insurance companys portfolio will essentially be dedicated to providing competitive returns in meeting the liabilities attached to policies sold. Hence, the risk tolerance associated with the fixed-income segment of a life insurance company will typically be less than that of a foundation, which usually has a moderate to high risk tolerance depending on spending rates.

A foundation determines what its spending needs are, which thereby causes liquidity to vary for each foundation. Liquidity is low for endowmentsusually only for emergencies and spending.

Foundations may be finite-lived entities, but endowments are created to provide a permanent base of funding.

Risk tolerance of foundations is critically linked to any time horizon structure while endowment risk tolerance is dependent on the importance of endowment funds in a sponsors overall budget picture.

Private foundations are required to pay out at least 5 percent of assets on an annual basis. Endowments do not have minimum spending requirements.

Private foundation investment income is taxable, whereas other foundations and endowments are not.

With respect to the legal and regulatory constraints, pension plans are regulated by the Employee Retirement Income Security Act (ERISA) while endowment funds are governed by the Uniform Management Institutional Funds Act (UMIFA).

Pension plans are held to a higher standard known as the prudent expert rule which states that ERISA fiduciaries must discharge their duties with care, skill, prudence, and diligence under circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of like character and aims. By diversifying the investments of the plan we minimize the risk of large losses.

Endowment plans are held to a standard known as the prudent investor rule, which states that fiduciaries must adhere to fundamental duties of loyalty, impartiality and prudence as well as maintain overall portfolio risk at a reasonable level and provide for the reasonable diversification of investments. Fiduciaries must also act with prudence in deciding whether and how to delegate authority to experts and in selecting and supervising agents.

With respect to the legal and regulatory constraints, pension plans are regulated by the Employee Retirement Income Security Act (ERISA) while endowment funds are governed by the Uniform Management Institutional Funds Act (UMIFA).

Pension plans are held to a higher standard known as the prudent expert rule which states that ERISA fiduciaries must discharge their duties with care, skill, prudence, and diligence under circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of like character and aims. By diversifying the investments of the plan we minimize the risk of large losses.

Endowment plans are held to a standard known as the prudent investor rule, which states that fiduciaries must adhere to fundamental duties of loyalty, impartiality and prudence as well as maintain overall portfolio risk at a reasonable level and provide for the reasonable diversification of investments. Fiduciaries must also act with prudence in deciding whether and how to delegate authority to experts and in selecting and supervising agents.

This is not an objective of a banks investment portfolio. All others are.

Low risk securities carry low (or no) risk weightings, which require no capital to support the investment. Loans are a core function of banking, but, as they are considered high risk, they require capital to support the investment. Unbalanced investments in low risk securities and not in loans are problematic because of the potential mismatch between cash inflows on assets and outflows on liabilities.

Assessing a banks capital risk position indicates the level of capital that must be held by the bank to support investment activities.

The most appropriate objective is to increase after-tax income, not only profits associated with income, capital gains, or municipal securities.