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Question Formulate a report based on the criteria below Components of the investment policy stateme TASK 60 You are a team of portfolio managers of Investment Advisory Services Inc Your firm

Question Formulate a report based on the criteria below: Components of the investment policy stateme

 

TASK: (60) You are a team of portfolio managers of Investment Advisory Services, Inc. Your firm has been invited to meet with

Question

Formulate a report based on the criteria below:

Components of the investment policy statement

1. Brief client description

2. Purpose of establishing policies and guidelines

3. Duties and investment responsibilities of parties involved

4. Statement of investment goals, objectives, and constraints

5. Schedule for review of investment performance and the IPS

6. Performance measures and benchmarks

7. Any considerations in developing strategic asset allocation

8. Investment strategies and investment styles

9. Guidelines for rebalancing

Desirable Components of an Investment Policy Statement for Individual Investors

SCOPE AND PURPOSE:

Define the Context

Define the Investor

Define the Structure

GOVERNANCE:

Specify responsibility for determining investment

policy

Describe process for review of IPS

Describe responsibility for engaging/discharging

external advisers

Assign responsibility for determination of asset

allocation

Assign responsibility for risk management

INVESTMENT, RETURN, AND RISK

OBJECTIVES:

Describe overall investment objective

State return, distribution, and risk requirements

Describe relevant constraints

Describe other relevant considerations

RISK MANAGEMENT

Establish performance measurement

accountabilities

Specify appropriate metrics for risk measurement

Define a process by which portfolios are rebalanced

TASK: (60) You are a team of portfolio managers of Investment Advisory Services, Inc. Your firm has been invited to meet with the trustees of the Midlands Museum Endowment Fund. The Midlands Museum is a privately endowed charitable institution that is dependent on the investment return from a $25 billion endowment fund to balance the budget. The treasurer of the museum has recently completed a study that indicates a need for cash flows from the endowment fund of 3.0 billion in 2019, $3.2 billion in 2020, and 3.5 billion in 2021 in order to balance the budget. At the present time, the entire endowment portfolio is invested in Treasury bills and money market funds because the trustees fear a financial crisis. The trustees do not anticipate any further capital contributions to the fund. The trustees are all successful businessmen, and they have been critical of the fund's previous investment advisers for not following a logical decision-making process. In fact, several previous managers have been dismissed because of their inability to communicate with the trustees and their preoccupation with the fund's relative performance rather than the cash flow needs. Investment Advisory Services, Inc., has been contacted by the trustees because of its reputation for understanding and relating to its clients' needs. The trustees have specifically asked to meet with you because of your recent article in a professional journal outlining the decision-making process of your firm. In the letter of invitation addressed to you, the trustees have included the flow chart in Exhibit A and the following quotations from a speech by Professor William Sharpe that were included in the article: "It is important to understand that, even if the market were perfectly efficient with every security plotting right on the plane, the investment management process would still require sophisticated procedures. In particular, it would require the tailoring of portfolios to meet clients' attitudes toward risk and clients' attitudes toward yield vis-à-vis gains. One important part of this exercise (modern portfolio theory) is finding out what the client is all about - where one client differs from another. The Trustees have asked you, as a prospective portfolio manager for the Midlands Museum Endowment Fund, to prepare a written report in response to the following questions. Your report will be circulated to the trustees prior to the initial interview on 30 April 2019.

Mar 16 2020 View more View Less

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