Asset Management video

Question 1

Purpose of asset management

Answer 1

Professional management of securities to meet the specified investment goals of investors

Question 2

Types of Institutional Investors

Answer 2

Insurance Companies, Defined Benefit/Contribution Plans/Charities/Government Bodies/Endowments/Non-financial Corporates/Pension Funds

Question 3

What institutional investors act as intermediaries for retail investors?

Answer 3

Insurance companies and pension funds

Question 4

Wealth Management

Answer 4

Private Client - will have a wealth manager

Question 5

Retail Asset Management

Answer 5

Individual or private investors with lower net worth. Managers typically charge a fee based on assets under management (AUM).

Question 6

What 3 things will a retail client portfolio have?

Answer 6

Income, Growth and Liquidity

Question 7

Asset Allocation - What is the best way for investors to achieve an acceptable risk/return trade-off for their portfolios?

Answer 7

Diversify the assets in the portfolio - different asset classes

Question 8

What is asset allocation based on?

Answer 8

The principle of diversification and modern portfolio theory, whereby portfolio risk can be reduced as more assets are added to the portfolio.

Question 9

What does asset allocation depend on?

Answer 9

the client’s risk tolerance and time horizon (the fund manager’s estimate of the risks and returns on the various assets is also important). Asset allocation has a major impact on whether a fund or portfolio will achieve an acceptable return – if not enough ‘risky’ assets (such as equities) are included in a fund, the return earned may not permit investors to achieve their investment objectives.

Question 10

Strategic Asset Allocation

Answer 10

Long-term allocation of an investment portfolio to stocks, bonds and other assets based on the investor’s goals and tolerance for risk. The allocation only changes when the investor’s risk profile changes or when new classes of assets emerge.

Question 11

Tactical Asset Allocation

Answer 11

the process of making short-term adjustments to a portfolio’s strategic allocation to take advantages of particular investment opportunities - temporary shifts

Question 12

Active Management

Answer 12

Frequent adjustments to a portfolio. If PMs have the discretion to invest in whatever they want as long as they stay in the constraints of the mandate.

Question 13

Passive Management

Answer 13

Believe it is possible to predict which assets which outperform others so the strategy is determined at the outset of their investment - index funds - lower fees

Question 14

Collective/Pooled Investment Vehicles in different jurisdictions

Answer 14

In the US - mutual funds, UITs, closed-end funds
In the UK - CIS through an OEIC/ICVC, AUT (authorised unit trust) or an investment trust
In Europe - UCITS
Internationally recognized - ETFs and Real Estate Investment Trusts

Question 15

Collective/Pooled Investment Vehicles - different funds

Answer 15

Equity Funds - quoted shares - med-high risk (long-term growth)
Bond Funds - corporate - government bonds - med-low risk (income rather than growth)
Money Market Funds - invests in deposits - low risk - low return
General Management Funds - balanced (wide range of assets) - medium risk (income and growth)
Property Funds - commercial property
Specialist Funds - higher risk
Ethical Funds - specialist funds - actively selected
Tracker Funds - Move in line with market index

Question 16

ETFs

Answer 16

open-ended pooled investment vehicles that are traded on the stock market in the same way as regular stocks - invests in a diversified portfolio of securities with the objective of meeting or beating market returns - majority are index-based products -can be traded intra-day (unlike mutual funds that are priced at the end of each day) - also invest in alternative assets

Question 17

Front office activities

Answer 17

FM responsible for allocating funds across different asset classes, deciding what to invest/disinvest and managing portfolios in line with IMA’s. FM supported by analysts and traders.

Question 18

Asset management activities

Answer 18

Securities Lending, Funding, financing, asset securitisation (taking illiquid assets and transforming them into a security (Mortgage backed security), collateral management (reduces counterparty credit exposures – normally used for swaps etc – if two parties agree), transfer agency services (trust company keeping a record of a companies stocks/bonds)

Question 19

Socially Responsible Investing (SRI)

Answer 19

practice of investing in stocks, bonds, funds and other assets that adhere to an ethical philosophy