Institutional investors often employ an active risk budget, typically gauging how much their portfolio deviates from the investment policy targets annually, often as a tracking error limit. This limit might be increased to seek higher returns or decreased to reduce…

It is a fact that the Code of Ethics and Standards of Professional Conduct apply to all CFA stakeholders and that candidates hoping to pass the exams need to be well versed in the Ethics material. This Los provides a…

This section of the curriculum presents a case in which a university endowment is deciding on its asset allocation, as well as its liquidity needs. This summary may be used in conjunction with the reading as a synopsis or may…

An illiquidity premium is a return earned by investors for the commitment of capital for an uncertain amount of time. In other words, it is a charge for the usage of money. Illiquidity, or liquidity premiums as they are also…

Liquidity risk involves a cost associated with locking up investor capital for an uncertain duration. Large institutional investors must plan their portfolio's liquidity to maximize fund efficiency. For example, an endowment funding college student aid may need to distribute funds…

Verification involves an independent third party reviewing a firm’s GIPS® procedures and confirming compliance. It doesn’t verify underlying calculations but checks if the firm follows GIPS® guidelines. Independent verification enhances a firm’s reputation for honesty and ethical standards. Selecting a…

Firms aiming for GIPS compliance should make a reasonable effort to furnish a GIPS Report to potential clients and investors in limited distribution pooled funds. The report should accurately represent the investment strategy being promoted to these prospective clients. Two…

Firms aiming for GIPS compliance should make a reasonable effort to furnish a GIPS Report to potential clients and investors in limited distribution pooled funds. The report should accurately represent the investment strategy being promoted to these prospective clients. Two…

The GIPS standards for constructing composites mandate the timely and consistent inclusion of new portfolios once they are managed. Firms must create, document, and consistently follow a policy for adding new portfolios to the relevant composites promptly. In many cases,…

Defining Discretion Let’s delve into the concept of defining discretion in managing portfolios. These restrictions on the investment process can vary widely, and they should be thoroughly outlined in the client’s Investment Policy Statement (IPS). While they serve as crucial…