CFA 3 Institutional Asset Management SS 5

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  1. What is the return objective of a DB plan?
    Actuarial rate. A cap gains rate when the fund has low liquidity needs and younger workers. An income focus when there are high liquidity needs and older workers. PV of Assets should be greater than PV of liabilities.
  2. What are the risk objectives of a DB plan?
    Dependent on the surplus, age of workforce, rime horizon and company balance sheet. Risk ability, not risk willingness is the only important factor.
  3. What are the liquidity constraints of DB plan?
    Older workforce, early retirement or lump sum payments, Mature & declining industry and lower cash contirbutions by the company via lower profitability all contribute to higher liquidity needs.
  4. What are the Time Horizons constraints of a DB plan?
    Is the plan a going concern? If so, usually a 2 stage horizon (1 stage until active workers retire, 2 stage is the life expectancy of the reitrees already receiving benefits).
  5. What are the legal and regulatory factors for a DB plan?
    In the US, ERISA regulates the implementation of DB plans. Most countries have their own laws and regs.
  6. What are the unique circumstances regarding a DB plan?
    Look for special laws (ERISA etc.) and plans that prohibit certain investments. Socially responsible investing etc.
  7. What is the return objective of a Foundation plan?
    There are no set returns, but many target payout + inflation + fund expenses to preserve real purchasing power.
  8. What are the risk objectives of a foundation?
    No set rules. Usually more risk tolerant than DB plans. risk dependant on liquidity and time horizon.
  9. What are the time horizon for a foundation?
    Most have infinitie horizons
  10. What are liquidity constraints of a foundation?
    Dependant on the spending rate
  11. What are the tax considerations for a foundation?
    Foundations are not taxable, except for unrelated business tax.
  12. What are the legal and regulatory constraints of a foundation?
    Prudent investor rule generally applies (evaluated from a portfolio perspective). There are some special laws (UMIFA) etc. in the states.
  13. What is the return objective of an endowment?
    Preserving real purchasing power is paramount. Spending rates above 5% generally are not achievable from a return perspective.
  14. What is the risk objective of an endowment?
    Dependant on the amount that the sponsor depends on the endowment for the operating budget.
  15. What is the time horizon for an endowment?
    Usually infiinite.
  16. What is the liquidity requirement for an endowment?
    Usually low - only emergency needs and normal draw downs for operating budgets. However, there can occassionally be large draw downs for capital improvement projects.
  17. What are the tax considerations of an endowment?
    Endowment income is tax excempt. However, unrelated business income tax must be paid.
  18. What are the legal constraints of an endowment?
    Usually there are no regulations. Many states have adopted UMIFA in the US though. Prudent investor rules apply.
  19. What are the unique circumstances for an endowment?
    Lots of unique circumstances. Usually social issues. Largely dependant on the type of endowment.
  20. What are the return objectives of a life insurance company?
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CFA 3 Institutional Asset Management SS 5
2012-02-14 18:45:25
CFA Institutional Asset Management SS

CFA 3 Institutional Asset Management SS 5
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