Q1- A foundation is a fund established for charitable purposes to support specific types of activities. Why the risk tolerance is high with long term investment horizons. Also, will the liquidity requirements be low or high?
Q2- An endowment is a fund that is dedicated to providing financial support on an ongoing basis for a specific purpose. Why the liquidity needs are low for endowment funds when they invest for long term horizons?
The fact that their liquidity needs are low allows them to invest in long term risky assets like real estate where liquidity is least.
Endowments and foundations have one major purpose of investment and that is their base capital must not go down or deplete. They aren’t needed to withdraw money on periodic basis and as a result they have low liquidity needs and can invest in risky securities with high risk return prospects.
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