PM R24

Question 1

Common characteristics of institutional investors

Answer 1

Large size, Long-term investment horizon, regulatory frameworks, governance frameworks and principal-agent issues

Question 2

IPS for institutional investors

Answer 2

Lists:
Mission and objectives
Liabilities
Investment horizon
Constraints (regulatory, accounting, tax)
Asset allocation
Rebalancing and Reporting

Question 3

Institutional Investors: Legal, Regulatory, Tax

Question 4

Risk considerations for DB pensions

Answer 4

DB fund have higher risk tolerance if:

Funded status is higher
Sponsor has less debt and more profitability
Plan is small relative to sponsors business
Correlation between plan assets and sponsor is low
Plan has no provisions for early retirement or lump sum payments
Workforce is young wand has a high level of active lives

Question 5

Investment objectives for institutional investor’s IPS

Question 6

Evaluate the IPS of an institutional investor

Question 7

Evaluate portfolios of DB pensions, sovereign wealth fund, university endowment and private foundation

Answer 7

DB and DC pensions vary on geography, jurisdiction, regulation, tax

SWF types:
Budget stabilization funds (mostly cash and bonds)
Development funds (depends on which socioeconomic causes supported)
Savings and pension funds (higher levels of equities and alternatives)
Reserve funds (equities, alternatives, bonds)

University: majority to alternatives. Smaller endowments have more domestic equities and fixed income

Private foundations: 50% to alternatives, smaller have more domestic equities and fixed income

Question 8

Considerations affecting bank and insurer balance sheets

Question 9

Institutional Investors: Stakeholders, Time Horizons, Liquidity