StrongPCMP4e-ch04.pptVIP

Chapter 4Investment Policy We investment professionals also need to keep in mind that some who participate in our investment decisions will be younger and less experienced than we are; some, perhaps the most influential, will be older and more powerful but may be far less experienced with investing. They may care greatly about the fund being discussed but may not be expert in investing. We, as professionals, must manage their understanding. Charles D. Ellis Outline Introduction The Purpose of Investment Policy Elements of a Useful Investment Policy Risk and Return Considerations: Different Investors Critiquing and Revising the Investment Policy Statement Introduction Investment policy is a statement about the objectives, risk tolerance, and constraints the portfolio faces Investment management is the practice of attempting to achieve the objectives while staying within the established constraints Introduction (cont’d) A statement of investment policy may be required in many cases e.g., ERISA Introduction (cont’d) This chapter addresses: Why an investment policy statement is important How you go about creating one What should be in it Example of A Policy Statement The Purpose of Investment Policy Outline Expectations and Responsibilities Identify Objectives and Constraints Outline Eligible Asset Classes and Their Permissible Use Provide a Mechanism for Evaluation Outline Expectations and Responsibilities Introduction Responsibilities and Knowledge Needs of Informed Clients The Investment Manager’s Responsibilities Introduction Investment policy is the responsibility of the client e.g., a individual, an endowment fund’s board Investment management is the responsibility of the money manager e.g., a bank trust department, a brokerage firm Responsibilities and Knowledge Needs of Informed Clients The client must set explicit investment policies consistent with his objectives Set the investment objective Understand how the policy statement promotes the