| Course | GF570 Portfolio Management |
|---|---|
| Unit | Unit 5 |
| Paper type | Portfolio construction case |
| Length | About 920 words, 6 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | MS in Finance |
| Updated | October 2026 |
Free sample paper for GF570 Unit 5
Eleven Sleeves at 36 Basis Points: A Unit 5 Portfolio Construction Case Where One Inherited Stock Dominates
[Student Name]
Purdue University Global
GF570: Portfolio Management
Unit 5 Portfolio Construction Case
[Instructor Name]
[Date]
The foundation, its managers and every fee and risk estimate are composite and illustrative; the articles cited are real.
The Mandate
The foundation adopted Mix B: U.S. equity 32 percent, non-U.S. equity 23, core bonds 16, inflation-linked bonds 6, real assets 6, private equity 12 and cash 5. Its policy limits fees implicitly through the return objective, requires at least 60 percent of assets liquid within thirty days, and excludes direct holdings in tobacco and firearms makers.
The Implementation Table
U.S. equity, 32 percent, in three sleeves.
1. The restricted acquirer shares: 12 percent, no fee, cannot be sold for two years.
2. A screened U.S. index account: 14 percent at 5 basis points, excluding the acquirer and underweighting its industry, and applying the tobacco and firearms screens.
3. A small-cap value manager: 6 percent at 75 basis points, chosen because the index account and the acquirer both lean toward large companies.
Non-U.S. equity, 23 percent, in two sleeves.
4. A developed-markets index fund: 16 percent at 6 basis points.
5. An emerging markets manager: 7 percent at 85 basis points, where active managers have historically had more room to add value.
Core bonds, 16 percent, in two sleeves.
6. A U.S. aggregate bond index fund: 10 percent at 4 basis points.
7. A core-plus manager: 6 percent at 35 basis points, allowed modest positions in high-yield and non-U.S. bonds.
The remaining sleeves.
8. Inflation-linked bond index fund: 6 percent at 5 basis points.
9. Listed infrastructure fund: 6 percent at 45 basis points.
10. Private equity: 12 percent across three fund commitments, at management fees near 150 basis points of invested capital, with carried interest on top. Until called, the money sits in a global equity index fund.
11. Government money market fund: 5 percent at 10 basis points.
The Cost
Weighting each sleeve's fee by its target gives about 36 basis points a year, about $660,000 on $184 million. Private equity accounts for half of that, though it is only 12 percent of assets. Excluding private equity, the public portfolio costs about 21 basis points. Research on investment costs finds that fees reduce net returns roughly one for one over time, so every basis point should buy something the foundation cannot get from an index (French, 2008).
Where the Active Risk Sits
Active risk is measured as each sleeve's expected tracking error against its benchmark, times its weight.
1. Acquirer shares: a single stock with about 25 percent volatility unrelated to the U.S. market, times 12 percent, contributes about 3.0 percentage points of tracking error.
2. Small-cap value manager: about 5 percent tracking error times 6 percent, 0.30 points.
3. Emerging markets manager: about 6 percent times 7 percent, 0.42 points.
4. Core-plus manager: about 1.5 percent times 6 percent, 0.09 points.
5. Infrastructure fund: about 3 percent times 6 percent, 0.18 points.
6. Private equity: about 15 percent against its public-market benchmark times 12 percent, 1.8 points.
Combining the hired managers, treating their deviations as independent, gives about 1.9 points of tracking error. The acquirer block alone contributes about 3.0.
The foundation hired seven active managers, counting the three private funds, and pays them about $610,000 a year to take active risk, yet the largest active bet in the portfolio is a stock nobody chose and nobody is paid to manage, which is why the sale plan for the acquirer block matters more than any manager decision.
Why Each Active Choice Was Made
Index funds fill the sleeves where markets are broad and cheap to own. Active managers were chosen only where the evidence for added value is stronger or where the foundation needed a specific exposure, such as small-cap value to offset the large-company tilt of the acquirer and the index account. Research on manager selection finds that past performance is a weak guide to future results, so each manager was chosen for process and fees rather than recent returns (Goyal & Wahal, 2008).
Liquidity Check
The index funds, money market fund, infrastructure fund and both active public managers can be redeemed within thirty days: about 76 percent of assets, or about 84 percent counting the index fund that holds uncalled private equity commitments. Private equity and the restricted shares are illiquid for now. The 60 percent floor is met.
What Would Change
When the acquirer shares become sellable, the four-quarter sale plan will move about 12 percent of assets into the screened index and the small-cap sleeve, cutting active risk by more than half and adding about 1 basis point of fees.
A Second Reading of the Fees
Fees should also be judged against what each sleeve is expected to add. The emerging markets manager would need to beat its index by more than its 85-basis-point fee, net of trading, to justify the choice over an index fund. Research on mutual funds finds that the typical active fund does not earn its fees after costs, so a manager hire should rest on specific reasons rather than general hope (Carhart, 1997).
Recommendation
Implement the eleven sleeves as listed, document the acquirer sale plan in the committee's minutes, and report active risk by sleeve each quarter so the trustees can see that the inherited stock, not the managers, drives the portfolio's deviations from its benchmark.
References
Carhart, M. M. (1997). On persistence in mutual fund performance. The Journal of Finance, 52(1), 57-82. https://doi.org/10.1111/j.1540-6261.1997.tb03808.x
French, K. R. (2008). Presidential address: The cost of active investing. The Journal of Finance, 63(4), 1537-1573. https://doi.org/10.1111/j.1540-6261.2008.01368.x
Goyal, A., & Wahal, S. (2008). The selection and termination of investment management firms by plan sponsors. The Journal of Finance, 63(4), 1805-1847. https://doi.org/10.1111/j.1540-6261.2008.01375.x
Reading the GF 570 Unit 5 instructions
The fifth GF570 unit asks you to implement an adopted allocation with specific vehicles. Present an implementation table listing each sleeve, its weight, its role and its fee. Explain why each sleeve is indexed or actively managed, tying active choices to evidence or to specific needs. Compute the portfolio's weighted fee and identify which sleeves drive it. Measure active risk by sleeve, combining tracking error and weight, and compare the sources. Check liquidity and other policy limits against the implemented portfolio. Address any holding the investor did not choose, such as restricted stock, and how the rest of the portfolio works around it. Describe what will change as constraints lift. Recommend implementation and reporting steps. Cite research on investment costs and manager selection in APA 7.
How this GF570 Unit 5 example is built
The sample restates the mandate and then lists eleven sleeves under four headings, from the zero-fee acquirer block to private equity at about 150 basis points. A cost section totals about 36 basis points, notes private equity is half of it, and cites French on active investing costs. An active risk section computes each sleeve's contribution, and the highlighted sentence observes that the largest bet is a stock nobody chose. A section on why each active choice was made cites Goyal and Wahal on manager selection, and a second reading of fees cites Carhart on persistence. A liquidity check finds about 76 percent redeemable within thirty days. A section on what will change describes the acquirer sale, and the recommendation adds quarterly active risk reporting by sleeve.
GF570 Unit 5 rubric: what earns full points
Construction cases in GF570 are graded on whether implementation is faithful to the policy and defended choice by choice. Graders check that sleeve weights sum to the targets, fees are computed correctly and active choices have reasons beyond past returns. The analytical share rewards measuring active risk by source and noticing when an unchosen holding dominates. Liquidity and exclusion checks against the policy show care. Instructors in the MS in Finance program value a plan for how the portfolio evolves as constraints lift, and reporting that makes the main risks visible to trustees. A clear implementation table, with French, Goyal and Wahal, and Carhart cited in APA 7, completes the scoring.
Common GF570 Unit 5 mistakes, and how to avoid them
Many GF570 Unit 5 cases list fund names and weights without explaining why each is indexed or active. Others compute total fees but not where they come from, so private equity's share goes unnoticed. Active risk is ignored or reported only for hired managers, missing an inherited concentration that may dominate. Liquidity is assumed rather than checked. Exclusions are forgotten in commingled funds. The portfolio is presented as static, with no plan for changes when restrictions lift. For any mandate your course builds, keep the same structure: an implementation table, reasons for each sleeve, fees by source, active risk by source, policy checks and a forward plan.
Get a GF570 Unit 5 example written to your instructions
Adopted weights, any vehicle list the GF570 Unit 5 case supplies, and the rubric go in; where no list exists, composite vehicles stand in with their fees and terms stated. Each holding is defended against the mandate and the totals are tested against policy. There is no fee on the first custom sample, which arrives in roughly 24-48h. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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- GF570 Unit 9: Rebalancing and Cost Memo
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GF570 Unit 5 questions, answered
Can the construction case name real funds?
Many instructors allow it, and some require it. The sample uses composite vehicles described by type, fee and terms, so nothing on this page reads as a recommendation. A custom version can name the funds your prompt lists or your instructor approves, still defended against the mandate rather than chosen for their performance history.
When is active management worth its fee?
The sample applies a rule rather than a preference: index in markets where information is widely shared and trading is cheap, active only where dispersion among managers is wide and a plausible edge exceeds the fee. It then names the fee each active manager must beat. Your rubric may frame the question differently, and the custom case follows its wording.
How should a concentrated stock position be handled?
As a constraint the rest of the portfolio completes around, until it can be sold. The sample shapes the index account to exclude the stock and underweight its industry, and measures the active risk the block still adds. The policy statement's sale schedule governs when it is reduced, which the case cites rather than revisits.
Where can I find a free GF570 Unit 5 sample paper?
This page holds a full GF570 Unit 5 portfolio construction case implementing a foundation's mix in eleven sleeves, with fees, active risk by sleeve, a liquidity check and APA 7 references.
Why does the acquirer stock carry so much active risk?
A single stock moves about 25 percent a year for reasons unrelated to the U.S. market. At 12 percent of assets, that contributes about 3.0 points of tracking error, more than all hired managers together.