Chapter 15 - Choosing An Appropriate Investment Strategy Flashcards
1
Q
Institutional investment objectives
A
Clearly stated and quantified.
Encompass permitted degree of risk, required return and cashflow timing
2
Q
Risk
Definitions
A
Probability of default
Expected variability of return
Risk of underperforming compared to competitors
Probability of failing to achieve investors objectives
3
Q
Risk
Risk appetite depend on
A
Nature of institution
Constraints of governing body and documentation
Legal or statutory controls
4
Q
Factors influencing an institutions investment strategy
A
- Nature of existing liabilities
- Currency of existing liabilities
- Term of existing liabilities
- Uncertainty in existing liabilities
- Tax and expenses
- Statutory, legal or voluntary restrictions
- Size of the assets
- Expected long term return
- Accounting rules
- Statutory valuation and solvency requirements
- Future accrual of liabilities
- Existing asset portfolio
- Strategy followed by other funds
- Institutions risk appetite
- Institutions objectives
- Need for diversification
- ESG considerations
5
Q
Factors influencing an individuals investment strategy
A
Characteristics of their assets and liabilities and matching cashflows Risk Returns form different asset classes Investment constraints Practical considerations