Reading 5

Question 1

Describe the structure of the asset management inudstry

Answer 1

• The industry is highly competitive; wide variety of firms and clients
• Investment approaches can be broadly distinguished as:
  a) passive - seek to replicate a benchmark return
  b) active - seek to outpeform
• Alternative investing
  i) beyond stocks and bonds
  ii) grown rapidly
  iii) changes higher fees
  iv) performance-based component to the fee

Question 2

Discuss a portfolio management process that supports achieving asset owners’ objectives

Answer 2

Portfolio management =

• constructing
• monitoring
• revising

Process =

• understanding the client’s objectives and constraints
• determining capital market expectations
• selecting final asset allocation

These steps are continually monitored and updated

Question 3

Discuss the elements of effective investment governance

Answer 3

Investment governance models should:

• establish long-term and short-term investment objectives
• allocate the rights and responsibilities of all the parties involved
• Construction
  i) Specify process -> IPS
  ii) Specify process -> strategic asset allocation
• Monitoring
  i) Apply a reporting framework to monitor program’s stated goals and objectives
• Revising
  i) Periodic review of the governance policies by an independent third party