Information about CFA level 3 exams & modules & Changes in ... - AFTC

Information about CFA level 3 exams & modules & Changes in CFA level 3 curriculum 2012 Bài thi CFA level 3 gồm 2 phần: 

phần essay buổi sáng: viết 3 tiếng, số lượng câu hỏi và số điểm 1 câu hỏi không cố định, không phải viết “văn” mà chủ yếu quan trọng là gạch ra các ý, tập trung vào key words, và tính toán

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phần problem sets buổi chiều (giống level 2): 10 sets, mỗi set có 6 câu hỏi.

Không giống như level 1 và 2 được chia thành 10 môn học, level 3 được chia thành 14 môn học như sau: 1. Ethics: ngoài việc ôn tập lại các standards đã học giống như level 1 và 2, môn này ở level 3 thêm một số nội dung mới đặc biệt như Code of Asset Management. Môn Ethics chỉ có trong bài thi buổi chiều (problem sets) chứ không xuất hiện trong bài essay buổi sáng. 2. Behavioral finance: nghiên cứu tâm lý trong đầu tư tài chính. Môn này chiếm tỉ trọng nhỏ, và có thể xuất hiện dưới dạng 1 bài essay ngắn tách biệt hoặc là 1 câu ẩn trong bài essay thuộc phần private wealth management, hoặc cũng có thể xuất hiện trong problem set buổi chiều. 3. Private Wealth Management: cung cấp kỹ năng cũng như framework cho công việc quản lý tài sản cá nhân. Phân tích nhà đầu tư cá nhân, gồm cả phân tích định tính và định lượng, từ đó lên IPS (Investment Policy Statements) cho họ. Môn này chủ yếu xuất hiện trong bài essay buổi sáng chứ hiếm khi xuất hiện trong problem set buổi chiều. Trong bài essay buổi sáng, nó có thể chiếm tới ¼ cho tới 1/3 số điểm (chiếm 45 cho tới 60 phút làm bài), nên cùng với Institutional investors, môn này chiếm tỉ trọng lớn nhất ở level 3. 4. Institutional Investors: tương tự như Private wealth management, nhưng là cho các nhà đầu tư tổ chức, cụ thể là các quỹ lương hưu (DB, DC), ngân hàng, công ty bảo hiểm (nhân thọ, phi nhân thọ), các quỹ từ thiện (foundation, endowment…)… Mục đích cũng là lên được IPS. Tỉ trọng và cách ra câu hỏi tương tự như Private wealth management. 5. Capital Market Expectations: Phân tích kinh tế vĩ mô và các phương pháp đưa ra dự đoán vĩ mô. Có thể trong bài buổi sáng hoặc chiều. 6. Economics: Lý thuyết sản xuất vĩ mô và định giá thị trường cổ phiếu vĩ mô. Có thể trong bài buổi sáng hoặc chiều. 7. Asset Allocation: Sử dụng một số phương pháp như Markowitz efficient frontier, Black Litterman, resampled efficient frontier… để phân bố khoản đầu tư vào các loại hình đầu tư khác nhau hoặc vào các đồng tiền khác nhau. 8. Fixed Income: nếu level 1 học về các khái niệm cơ bản, level 2 học về định giá là chủ yếu, thì level 3 thiên về chiến lược cụ thể: đầu tư với tỉ lệ bao nhiêu, mua bán bao nhiêu, dùng công cụ nào… Có thể trong bài buổi sáng hoặc chiều. 9. Equity: phạm vi focus và hình thức thi tương tự như Fixed Income 10. Alternative investments: phạm vi focus và hình thức thi tương tự như Fixed Income

11. Risk Management: phạm vi focus và hình thức thi tương tự như Fixed Income 12. Execution, Monitoring & Rebalancing: Thực hiện mua bán, đặt lệnh trên thị trường thế nào để tiết kiệm chi phí. Giám sát danh mục và xử lý mua bán lại khi tỉ lệ trong danh mục đi chệch khỏi mục tiêu ban đầu như thế nào. Có thể trong bài buổi sáng hoặc chiều. 13. Performance evaluation and attribution: Phương pháp đánh giá performance của danh mục, đồng thời “gán công trạng, trách nhiệm” cho từng khâu, từng người phụ trách trong toàn bộ quá trình đầu tư. Có thể trong bài buổi sáng hoặc chiều. 14. GIPS: các nguyên tắc đo lường và báo cáo performance. Có thể trong bài buổi sáng hoặc chiều. So với năm 2011, thì năm 2012, số lượng readings của level 3 giảm 5 readings còn 43 readings. Nhưng thực ra điều này không đồng nghĩa với lượng kiến thức bị loại bớt, mà do môn Behavioral finance được viết lại hoàn toàn với 3 readings mới, dài hơn, thay thế cho 7 readings ngắn ngày trước. Reading duy nhất thực sự bị loại bỏ là reading 18 cũ (Goal‐ based investing: integrating traditional and behavioral finance) nằm trong môn Private wealth management, có lẽ là do bị overlap với môn behavioral finance đã được viết lại. Phần viết lại này đọc hấp dẫn hơn, logic chặt chẽ hơn năm cũ nhiều lần. Các môn còn lại không thay đổi gì hoặc chỉ thêm, bớt 1‐3 LOS, hoặc đổi thứ tự các LOS. Người tổng hợp: Phạm Thiên Quang & Nguyễn Hoài Phương, AFTC.

CFA LEVEL 3 STUDY SESSION 1&2

CODE OF ETHICS & STANDARDS OF PROFESSIONAL CONDUCT

All CFA Institute members and candidates are required to comply with the Code and Standards

The CFA Institute Bylaws

Structure of the CFA Institute Professional Conduct Program

Basic structure for enforcing the Code and Standards

Professional Conduct program (PCP)

Rules of Procedure

The CFA Institute Board of Governors

The CFA Designated Officer

Fair process to member and candidate

Based on two primary principles

Confidentiality of proceedings

Maintains oversight and responsibility Is responsible for the enforcement of the Code and Standards

Through the Disciplinary Review Committee (DRC) Directs Professional Conduct Staff

Conducts professional conduct inquiries

An inquiry can be prompted by several circumstances

a. Requesting a written explanation from the member or candidate

1. Code Of Ethics And Standards Of Professional Conduct

The Professional Conduct staff conducts an investigation that may include Process for the enforcement of the Code and Standards

Six components of the Code of Ethics

b.

Seven Standards of Professional Conduct

The member or candidate Interviewing

Complaining parties Third parties

Collecting documents and records in support of its investigation When an inquiry is initiated

Conclude the inquiry with no disciplinary sanction Issue a cautionary letter Upon reviewing the material obtained during the investigation, the Designated Officer may

Continue proceedings to discipline the member or candidate

If finding that a violation of the Code and Standards occurred, the Designated Officer proposes a disciplinary sanction

Accepted by member Rejected by member

The matter is referred to a hearing by a panel of CFA Institute members

Understand and comply with applicable laws and regulations Follow stricter law and regulation

Code and Standards vs. Local law

Responsible for violations in which they

knowingly participate or assist ->Leave employers (in extreme cases)

Dissociate from illegal, unethical activities Guidance

Attempt to stop the behavior by bringing it to the attention of employer through a supervisor or compliance department

Participation or association with violations by others

Intermediate steps

May consider directly confronting the involved individuals If not successful,-> step away and dissociate from the activity by

Removing their name from written reports Asking for a different assignment

Inaction with continued association may be construed as knowing participation

A. Knowledge of the law

Not require reporting violations to govt, CFAI, but... Investment products and applicable laws Stay informed Review procedures Recommended procedures for compliance (RPC)

Maintain current files

Members and candidates

When in doubt,->seek advice of compliance personnel or legal counsel When dissociating from violations,-> Document any violations and urge firms to stop them Develop and/or adopt a code of ethics Firms

Make available to employees info that highlights applicable laws and regulations Establish written procedures for reporting suspected violation of laws,...

Application

Maintain independence and objectivity in professional activities Gifts Invitations to lavish functions Tickets Favors

By benefits

Job referrals Allocation of shares in oversubscribed IPOs to investment managers

External pressures

.... From Buy-side clients

May try to pressure sell-side analysts

From public companies How to cope with external and internal pressures

To issue favorable reports

Fund managers relationships e.g. to issue favorable research reports/recommendations for certain companies From their own firms

Internal pressures

Guidance

Investment-banking relationships

to issue favorable research on current or prospective investment-banking clients Conflicts of interest

Credit rating agency opinions -->Modest gifts and entertainment are acceptable but special care must be taken

B. Independence and objectivity

-->must disclose to employers

-->Best practice: reject any offer of gift,..threatening independence and objectivity -->

convey true opinions -->Recommendations must

free of bias from pressures be stated in clear and unambiguous language

-->Portfolio managers must respect and foster honesty of sell-side research Is fraught with conflicts

2.1 Standard I PROFESSIONALISM

Must engage in thorough, independent, and unbiased analysis Issuer-paid research

Must fully disclose potential conflicts, including the nature of compensation -->Analysts

Must strictly limit the type of compensation they accept for conducting research Best practice

Accept only flat fee for their work prior to writing the report W/O regard to conclusions or recommendations

Protect integrity of opinions Create a restricted list Restrict special cost arrangements RPC

Limit gifts Restrict employee investments

Equity IPOs Private placements

Review procedures Written policies on independence and objectivity of research

any untrue statement or omission of a fact

Definition of "Misrepresentation"

or any false or misleading statement oral representations, advertising

Must not knowingly make misrepresentation or give false impression in

electronic communications written materials

qualifications or credentials, services

Guidance

Must not misrepresent any aspect of practice, including

performance record characteristics of an investment any misrepresentation relating to member's professional activities

Must not guarantee clients specific return on investments that are inherently volatile employers associates

C. Misrepresentation

Standard I(C) prohibits plagiarism in preparation of material for distribution to

Plagiarism

clients prospects general public

Work completed for employer Written list of available services, description of firm's qualification

Factual presentation

Designate employees to speak on behalf of firm Prepare summary of qualifications and experience, list of services capable of performing

Qualification summary RPC

Verify outside info Maintain webpages Maintain copies To avoid plagiarism

Attribute quotations Attribute summaries

professional integrity Address all conduct

reflects poorly on

good reputation competence of members and candidates

Any act involving lying, cheating, stealing, other dishonest conduct that reflects adversely on member's professional activities would be violation

Guidance

Conduct damaging trustworthiness or competence

D. Misconduct

Violations

Absence of appropriate conduct Lack of sufficient effort Abuse of the CFA Institute Professional Conduct Program

Develop and/or adopt a code of ethics RPC

Disseminate to all employee a list of potential violations Check references of potential employees

a

Definition of "Material nonpublic information" Must be particularly aware of info selectively disclosed by corporations Analysis of Public info + nonmaterial nonpublic info --> Investment conclusion

Guidance Mosaic Theory

Analysts are free to act on this collection of info w/o risking violation Analysts should save and document all their research

Make reasonable efforts to achieve public dissemination of material info Achieve public dissemination

If public dissemination is not possible,

Must communicate the info only to the designated supervisory and compliance personnel within the firm Must not take investment action on the basis of the info

Must not knowingly engage in conduct inducing insiders to privately disclose MNI

adopt compliance procedures preventing misuse of MNI

A. Material nonpublic information (MNI)

Adopt compliance procedures

Encourage firms to

develop & follow disclosure policies to ensure proper dissemination use "firewall"

Firewall elements

Adopt disclosure procedures

2.2 Standard II INTEGRITY OF CAPITAL MARKET

Issue press releases RPC

Appropriate interdepartmental communications Physical separation of departments Prevention of personnel overlap A reporting system Personal trading limitations Record maintenance Proprietary trading procedures

Prohibition of all proprietary trading while firm is in possession of MNI may be inappropriate

Communication to all employees

Definition Info-based manipulations

dissemination of false or misleading info

can be related to Transaction-based manipulations

B. Market manipulation

Standard II(B) not meant to

transactions that deceive market participants

prohibit legitimate trading strategies prohibit transactions done for tax purposes

The intent of action is critical to determining whether it is a violation of this Standard Application

duty to exercise reasonable care

Prudence require cautions and discretion

Understand & adhere to fiduciary duties

act with care, skill, and diligence follow the investment parameters set forth by clients & balancing risk & return

Must be aware of whether they have "custody" or effective control of client assets

Manage pool of assets in accordance with terms of governing documents Responsibility to a client includes

Put their obligation to client first in all dealings

duty of loyalty

Avoid all real or potential conflicts of interest

Guidance

Forgo using opportunities for their own benefit at the expense of client Identifying the actual investment client

A. Loyalty, prudence, and care

Developing the client's portfolio

Follow any guidelines set out by client for the management of assets Judge investment decisions in context of total portfolio

"Soft dollars"

Soft commission policies Proxy voting policies

Submit to clients at least quarterly itemized statements Separate assets Review investments periodically

RPC

Establish policies & procedures with respect to proxy voting and the use of client brokerage Encourage firms to address some topics Do not discriminate against any clients "Fairly" vs "equally" Standard III(B) addresses the manner of disseminating investment recommendations or changes in prior recommendations to clients Ensure fair opportunity to act on Encourage firms to design equitable system to prevent selective, discriminatory disclosure

Investment recommendations

Material changes should be communicated to all current clients Guidance Clients who don't know changes and therefore place orders contrary to a current recommendation

B. Fair dealing

particularly clients may have acted on or been affected by earlier advise should be advised of the changed recommendation before the order is accepted

Treat all clients fairly in light of their investment objectives & circumstances

2.3 Standard III DUTIES TO CLIENTS

Investment actions

duty of fairness and loyalty to clients can never be overriden by client consent to patently unfair allocation procedures

Disclose to clients & prospects written allocation procedures

Should not take advantage of their position in the industry to the detriment of clients Must NOT disadvantage or negatively affect clients Different levels of services

Disclosed to clients/prospective client Available to everyone

RPC

Inquiry should be repeated at least annually/ In investment advisory relationships

If clients withhold info

Be sure investments are consistent with the stated mandate

Fund managers In case of unsolicited trade requests unsuitable for client

Guidance

-->refrain from making trade or seek affirmative statement from client that suitability is not a consideration Be sure to gather client info in the form of an IPS and make suitability analysis prior to making recommendation/taking investment action

Developing an Investment policy

C. Suitability

-->suitability analysis must be done based on info provided

Risk analysis

Understanding the Client's risk profile Updating an investment policy

at least annually/prior to material changes

The need for diversification Managing to an index/mandate Written IPS

RPC

Investors' objectives and constraints should be maintained and reviewed periodically to reflect any changes in clients' circumstances

Standard III(D) prohibits misrepresentations of past performance or reasonably expected performance --> Provide credible performance info Guidance

D. Performance presentation

-->Should not state or imply that clients will obtain or benefit from rate of return generated in the past Research analysts promoting the success of accuracy of their recommendations

--> ensure that their claims are fair, accurate, and complete

If the presentation is brief, must make available to clients and prospects the detailed info upon request RPC

GIPS

Standard III(E) is applicable when members receive info Status of client Guidance

Comply with applicable laws

When in doubt

-->consult with compliance department/outside counsel before disclosing

E. Preservation of confidentiality Electronic info and security Professional conduct investigations by CFAI RPC

Standard III(E) does NOT prevent cooperating with an investigation by CFAI PCP

a

In matters related to their employment, members and candidates must not engage in conduct that harms the interests of the employer -->Comply with policies and procedures established by employers that govern employer-employee relationship

Employer-employee relationship

Standard IV(A) does not require to place employer interests ahead of personal interests in all matters The relationship imposes duties and responsibilities on both parties

Abstain from independent competitive activity that could conflict with employer's interests

Independent practice

Provide notification to employer, obtain consent from employer in advance Guidance

A. Loyalty

Planning to leave, must continue to act in employer's best interest Must

Firm records or work performed on behalf of firm stored on a home computer should be erased or returned to employer engage in activities conflicting with duty until resignation effective

Leaving an employer

Must not

contact existing clients/potential clients prior to leaving for soliciting take records of files to a new employer without written permission

Free to make arrangements/preparations provided that not breaching duty of loyalty Applicable non-compete agreement Whistleblowing Nature of employment

2.4 Standard IV DUTIES TO EMPLOYERS

Obtain written consent from employer before accepting compensation or other benefits from third parties...

Guidance

B. Additional compensation arrangements

RPC

Should make an immediate written report to their employers

Must have in-depth knowledge of the Code & Standards Apply knowledge in discharging supervisory responsibilities Delegation of supervisory duties does not relieve members of supervisory responsibility

-->Instruct subordinates methods to prevent and detect violations

Make reasonable efforts to detect violation of laws, rules, regulations, and Code & Standards Make reasonable efforts to detect violation of laws, rules, regulations, and Code & Standards Must understand what constitutes an adequate compliance system Guidance

-->Establish and implementing Compliance procedures

Make reasonable efforts to see that appropriate compliance procedures are established, documented, communicated to covered personnel and followed In case of employee's violation,

Detection procedures

C. Responsibilities of supervisors

promptly initiate investigation take steps to ensure no repetition

Bring an inadequate compliance system to senior managers's attention & recommend corrective action Inadequate procedures

If clearly cannot discharge responsibilities 'cos of absence of compliance system,

Enforcement of non-investment-related policies

Recommend employer to adopt a code of ethics Respond promptly RPC

If there is a violation

Conduct a thorough investigation Increase supervision or place appropriate limitations on the wrongdoer pending the outcome of the investigation

-->decline in writing to accept responsibilities

investment philosophy followed role of member in the investment decision-making process

The application of Standard V(A) depends on

support and resources provided by employer Must make reasonable efforts to cover all pertinent issues when arriving at recommendation Provide or offer to provide supporting info to clients when making recommendations/changing recommendations Guidance Using secondary or third-party research

A. Diligence and reasonable basis

-->must make reasonable &diligent efforts to determine whether 2nd/3rd party research is sound

If member does not agree with the independent and objective view of the group

Group research and decision making

-->Not necessarily have to decline to be identified if believing consensus opinion has reasonable & adequate basis -->Should document member's difference of opinion with group

RPC

Standard V(B) addresses conduct with respect to communicating with clients Developing and maintaining clear, frequent, and thorough communication practices is critical present basic characteristics of the analyzed security in preparing research report Informing clients of the investment process

2.5 Standard V INVESTMENT ANALYSIS, RECOMMENDATIONS & ACTIONS

adequately illustrate to clients & prospective clients the manner of conducting investment decision-making process keep them informed with respect to changes to the chosen investment process Communication is NOT confined to written form but via any means of communication -->must be supported by background report or data on request

Guidance

B. Communication with clients and prospective clients

Different forms of communication

Brief communications

Capsule form recommendations

Identifying limitations of analysis

-->should notify clients that additional info and analyses are available from the producer of the report

Investment advice based on quantitative research and analysis

-->must be supported by readily available reference material -->in a manner consistent with previously applied methodology or with changes highlighted

Should outline known limitations, consider principal risks in investment analysis, report Distinction between facts and opinions in reports RPC

In hard copy or electric form

Guidance

C. Record retention

Fulfilling regulatory requirements may satisfy the requirements of this Standard Absence of regulatory guidance,

RPC

Must explicitly determine whether it does

CFAI recommends maintaining records for at least 7 yrs

is a critical part of working in investment industry Managing conflicts can take many forms

Best practice is to avoid conflicts of interest when possible If not, disclosure is necessary

prominent Disclosures must be

made in plain language in a manner to effectively communicate the info to clients between member or their firm and issuer investment banking

Relationships

underwriting and financial relationships Broker/dealer market-making activities -->Sell-side members

should disclose material beneficial ownership interest in securities/investment recommended

-->Buy-side members

should disclose procedures for reporting requirements for personal transactions

Material beneficial ownership of stock Disclosure to clients

Guidance

All matters may impair objectivity between duties to clients and to shareholders of the company poses conflicts of interest

A. Disclosure of conflicts

Investment personnel also serves as a director

may receive option to purchase securities of the company as compensation MNI

-->members providing investment services also serving as directors should be isolated from those making investment decisions

Same circumstances with clients

What? Disclosure of conflicts to employers

How?

by firewalls

Any potential conflict situation Enough info Must comply with employer's restrictions regarding conflict of interest

Other requirements

2.6 Standard VI CONFLICTS OF INTEREST

Must take reasonable steps to avoid conflicts If conflicts occur inadvertently, must report them promptly

Should disclose special compensation arrangements with employer that might conflict with client interest RPC

Document request & may consider dissociating from the activity if firm does not permit disclosure of special compensation arrangements Disclose to clients info that fee based on a share of capital gains Disclose as a footnote to research report published if members have outstanding agent options to buy stocks as a part of compensation package

may occur client is not disadvantaged by the trade

Avoiding potential conflicts

Conflicts of interests

-->make sure

investment professional does not benefit personally from trades undertaken for clients investment professional complies with applicable regulatory requirements

Clients & employers' transactions have priority May undertake personal transactions after clients & employers have had adequate opportunity to act on recommendation

Guidance

B. Priority of transactions

Co-investment Personal trading secondary to trading for clients

-->personal investment positions or transactions should never adversely affect client investments should be treated like other accounts

Family accounts (that are client accounts)

Standards for nonpublic info

employer client prospective client compensation Inform

C. Referral fees

what

consideration benefit received from, or paid to, others

how

-->may still be subject to preclearance or reporting requirements

Having knowledge of pending transactions, assess to info during normal preparation of research recommendations

RPC

whom

if member has beneficial ownership

before entry into any formal agreement nature of the consideration or benefit

-->Must not convey such info

Cheating on CFA exam or any exam

Prohibiting any conduct that undermines the integrity of the CFA charter

A. Conduct as members and candidates in the CFA program

2.7 Standard VII RESPONSIBILITIES AS CFA MEMBER / CANDIDATE

Not following rules and policies of the CFA program Giving confidential info on the CFA Program to candidates or the public .....

Not precluded from expressing opinion regarding the CFA Program or CFAI

Preventing promotional efforts that make promises or guarantees tied to the CFA designation

Over-promise the competence of an individual Over-promise future investment results

Applies to any form of communication

B. Reference to CFA Institute, the CFA Designation and the CFA program

To maintain CFAI membership

Remit annually to CFAI a completed Professional Conduct Statement Pay applicable CFAI membership dues on an annual basis

Using the CFA designation

Referencing candidacy in the CFA program

Proper using of the CFA marks

a

a. Explain the ethical responsibilities required by Codes and Standards

CS1: ARGENT CAPITAL MANAGEMENT

CS2: RIVER CITY PENSION FUND

3.4.5 Ethics In Practice

CS3: MACROECONOMIC ASSET MANAGEMENT

CS4: BOB EHRLICH

b. Case study CS5: ALEX KAYE

4. THE CONSULTANT

5. PEARL INVESTMENT MANAGEMENT

a. Explain the ethical responsibilities required by AMC

6. Asset Manager Code Of Professional Conduct b. Interpret AMC in situations

c. Preventing violations

CFA LEVEL 3 STUDY SESSION 3

BEHAVIORAL FINANCE

Traditional finance

a. Contrast

Behavioral finance

Expected utility

b. Contrast Prospect theory

7. The Behavioral Finance Perspective Cognitive

c. Effects of

Knowledge capacity limitations

Capital markets

d. Traditional vs. Behavioral finance on

Portfolio construction

Cognitive errors

a. Distinguish Emotional biases

Conservatism bias Confirmation bias I.1 Belief Perseverance biases

Representativeness Illusion of control

I. Cognitive errors

Hindsight Anchoring and adjustment I.2 Information-processing biases

8. The Behavioral Biases Of Individual

II.1 Loss-aversion II.2 Overconfidence II. Emotional biases

II.3 Self-control II.4 Status quo II.5 Endowment II.6 Regret-aversion

d1. Behaviorally modified asset allocation

d2. Case studies

Framing Availability

b,c. Commonly recognized behavioral biases

d. Impact of biases on Investment policy and asset allocation

Mental accounting

Uses

a. Classifying investors

Limitations

b. Adviser-client interactions

9. Behavioral Finance And Investment Processes

Behavioral factors affect

d. Analyst forecasts e. Investment committee decision making

c. Applying behavioral finance for portfolio construction

market anomalies

f. Investors' behavior--->

observed market characteristics


PRIVATE WEALTH MANAGEMENT

Active wealth creation (by entrepreneurial activity)

Sources of wealth

Through inheritance Passive wealth creation, acquired

One-time windfalls Accumulated over long periods of secure employment

a. Risk tolerance affected by

Measures of wealth

Positive correlation between risk tolerance &

Stage of life

perceived portfolio size

Foundation phase, Accumulation phase, Maintenance phase, Distribution phase

Risk aversion

Warm-up: Traditional assumptions

Rational expectations Asset integration

Source of wealth, Measure of wealth, Stage of life

Situational profiling

Situational profiling vs Psychological profiling

Decision-making styles: Feeling vs Thinking

Psychological profiling

Risk attitudes: More risk averse vs Less risk averse

b,c. Behavioral finance vs Traditional finance

Loss aversion vs Risk aversion Biased expectations vs Rational expectations Asset segregation vs Asset integration

Risk tolerance

d. Psychology affects

10.1 Managing Individual Investor Portfolios

Investment choice

Risk attitudes

2 dimensions

Decision-making style Cautious

e,f. Personality types

Personality types

Methodical Individualistic Spontaneous

Optimal decisions, Dynamic process, long-term objectives, usable by new advisers

For client

g. Benefits Suitability clarification, Dispute Resolution, Problem Identification

For advisers

Objectives

Risk Return Time horizon(s) Taxes

Planning

IPS

Constraints

Liquidity Legal & regulatory needs Unique circumstances

h. Steps

IPS Capital Market Expectation Strategic Asset Allocation

Execution

Feedback

Portfolio selection Portfolio implementation Monitoring & Rebalancing Evaluation

Return objective

Required Desired Short-term & Long-term goals

i,j. Objectives

Risk objective

Ability to take risk

Primary & Secondary goals Max Volatility

Willingness to take risk

Time horizon

Short-term vs. long-term Pre-retirement, Retirement, Post-retirement New time horizon Classification: Income tax, Capital gain tax, Transfer tax, Wealth tax or personal property tax

Tax concerns

Tax deferral Reduce adverse impact of tax

Tax avoidance Tax reduction Wealth transfer taxes

k. Constraints

Normal expenses Needs

Sufficient surplus Major planned events

Liquidity

10.2 Managing Individual Investor Portfolios (Cont.)

Liquidity characteristics of portfolio assets

Transaction costs Volatility Illiquid holdings

Legal & regulatory factors Unique circumstances

l. Formulate & justify an IPS for an individual investor

After-tax return requirements Liquidity requirements

m. Strategic asset allocation

Risk tolerance: Safety first rule Unique circumstances: no disallowed assets Minimize cash Maximize Sharpe ratio

Traditional deterministic techniques

n. Retirement planning

Monte Carlo simulation techniques --> advantages

Use single estimates of inputs and yield point estimate of outcome

Better indication of risk/return trade off Show tradeoffs of short-term risks and risks of not meeting goals Incorporate tax calculation nuances better Better incorporate the compounding effect of reinvestment

Taxes on Income (What you make) Taxes on Wealth (What you have and transfer)

a. Global taxation regimes

Taxes on consumption (What you spend) 7 Global tax regimes

Future value interest factor

b. Tax regimes

Tax drag/Gain lost to taxes

Accrual Taxes Deferred Capital Gains Taxes

With cost basis Only market value

d. Return, Investment horizon & tax impact

Wealth-based Taxes Realized tax rate & Effective capital gain taxes

Accrual equivalent tax rates

c. Accrual equivalent after-tax returns

11. Taxes & Private Wealth Management In A Global Context

After-tax returns

Tax-deferred account (TDA)

e. Account tax profiles

Tax advantaged account (CGBT) Tax-Exempt account (TEA)

Reduction in investment risk

f. Taxes & investment risk

Traders Active Investors

g. The tax effects of trading behavior

Passive Investors Exempt Investors

Tax-loss harvesting

h. Tax loss harvesting & HIFO tax lot accounting

i. Taxes & Mean-Variance optimization

HIFO tax lot accounting

Accrual equivalent after-tax returns After-tax risk

Estates Wills

a. Estate planning

Probate

Gifts

Forms of transferring assets

Bequests Law systems

Civil law system Common law system

b. Wealth transfer taxes

Forced heirship

Is... If avoided --> claw-back

Marital property regime

community property rights separate property rights

12.1 Estate Planning In A Global Context

d. Relative after-tax values

Mortality probabilities

c. Core capital

Monte Carlo analysis

Tax-free gift Taxable gift

Recipient pays gift taxes

e. Gift taxes

Donor pays gift taxes

Generation skipping Spousal exemptions

f. Estate planning strategies

Valuation discounts Charitable gifts (charitable gratuitous transfers)

Grantor/Settlor --> Beneficiaries outside of probate process Trustee

Distinguish

Revocable trusts Irrevocable trusts

g. Trusts Fixed trust Concepts

Discretionary trust Spendthrift trust

h. Life insurance

12.2 Estate Planning In A Global Context (Cont.)

Income taxes

i,j. Tax jurisdiction (Source jurisdiction vs Residence jurisdiction)

Wealth transfer taxes Exit taxes

Residence-residence Conflicts

Source-source Residence-source

k. Relief from double taxation

Credit Relief methods

Exemption Deduction

Tax avoidance vs Tax evasion

l. International transparency

Global treaties and agreement

Source of wealth

Psychological Issues

Entrepreneurs a,b,c.

Executives Investors

Equity holding life

Outright sales

13. Low Basic Stock

Exchange funds

Public exchange funds

Private exchange funds

d. Diversification techniques

Completion portfolios

Hedging

Sell calls and Buy puts

Equity collars

Short identical securities No constructive sale

Swap of the same notional amount Forward contract of same/idential assets

Variable pre-paid forwards

Risk Considerations

Formulation Human Capital vs Financial Capital

a. Human capital

Equity-like vs Debt-like

Savings rate Earning risk

Correlation of human and financial capital Relative risk

b. Mortality risk Longevity risk

c. Asset allocation policy

14. Lifetime Financial Advice: Human Capital, Asset Allocation & Life Insurance

Total return perspective Risk allocation

Formula: Probability of death Bequest desire

d. Life insurance

LIPO (Life Insurance Payout)

Financial wealth & demand for life insurance Human capital volatility & demand for life insurance Risk aversion & demand for life insurance Probability of death & demand for life insurance

Financial market risk

e. Risk in retirement

Longevity risk Savings risk

Fixed annuities

f. Longevity hedges

g. Exam review

Variable annuities


PM FOR INSTITUTIONAL INVESTORS

General pension definitions Types of pension plans

Defined-benefit plan Cash balance plan Defined-contribution plan Funded status

Pension plan funding

Fully funded

Warm-up: Pension plans

Underfunded Surplus ABO Pension plan liabilities

PBO Total future liability Retired lives Active lives

Advantages

Disadvantages

Defined-benefit plans

a. Contrast

Defined-contribution plans

Objectives

DB plan constraints

Return

Liquidity Time horizon Legal & regulatory factors Unique circumstances

b,c. Definedbenefit plan objectives

15.1 Managing Institutional Investor Portfolios

Plan surplus Risk tolerance

Sponsor financial status & profitability Sponsor & pension fund common risk exposure Plan features Workforce characteristics

e. Risk Management in Investing pension plan assets

Plan Assets & Firm operations Plan Assets & Plan Liabilities

Hybrid plans

g.

ESOPs

Description

Independent

h. Foundations

Company sponsored

Operating

Community

d. IPS for DB plan f. IPS for DC plan

IPS j. IPS for foundation, endowment, insurance company & bank

Purpose

Source of funds

Annual spending requirement

Are...

Endowments

Simple spending rule Spending rules

Rolling 3-year average spending rule Geometric spending rule

Traditional policies

Life Insurance companies New policies

WARM-UP

Whole life Term life

Universal life Variable life

Asset/Liability management

Nonlife insurance companies

Bank security portfolios

Banks

Duration, Credit risk, Income & Liquidity Bank risk measures

OBJECTIVES Return

Endowments

15.2 Managing Institutional Investor Portfolios (Cont.)

Life Insurance companies

i.

Nonlife Insurance companies

Banks

DB pension funds

DC pension funds

Foundations

m. Asset/Liability management needs of

Endowments

Insurance companies

Banks

Investment companies

k.

Commodity pools Hedge funds

l,n. Investment policies of institutional investors

Risk

CONSTRAINTS Liq.

TimeH

Taxes

Legal

Unique

a. Assumptions concerning pension liability risk in

Asset-only approach Liability-relative approach

Market exposures due to accrued benefits

Active part Inactive part

16. Linking Pension Liabilities To Assets

b. Pension liability exposures

Market exposures due to future benefits

Future wage growth Future services rendered Future entrants

Non-market exposures

Plan demographic Model uncertainty

c. The liability-relative approach in practice

Funding shortfall

a. Funding shortfall & asset/liability mismatch

17. Allocating Shareholder Capital To Pension Plans

Asset/Liability mismatch

b. The weighted average cost of capital

Formulas Implications

Total assets betas

c. Changing pension asset allocations

Debt-to-equity ratio Equity capital needed to maintain equity beta


CAPITAL MARKET EXPECTATIONS

Macro expectations

CME

Micro expectations

1. Determine CME needed 2. Investigate asset's historical performance & determinants

a. Formulating CME (beta research # alpha research)

3. Identify valuation model and its requirements 7 steps

4. Collect best data possible 5. Interpret current investment conditions 6. Formulate CMEs 7. Monitor performance and refine the process

1. Limitations to using economic data 2. Data measurement errors and biases

Transcription errors Survivorship bias Appraisal data (smoothed)

3. Limitations of historical estimates

Regime changes --> nonstationary data. Span of data

4. Using ex post data 5. Non-repeating data patterns

b. Problems in forecasting

Data mining Time period bias

6. Failing to account for conditioning information 7. Misinterpretation of correlations Anchoring Status quo trap Confirming evidence

8. Psychological traps

18.1. Capital Market Expectations

Overconfidence trap Prudence trap (fear of regret) Recallability trap 9. Model & input uncertainty

Projecting historical data

Statistical tools

Shrinkage estimators Time series analysis Multifactor models

c. Forecasting tools DCF models

Gordon growth model Grinold & Kroner

Risk premium approach Financial equilibrium models

Surveys

d. Using

Panel method Judgment

The inventory and business cycle Inflation

e. Cyclical analysis

Consumer & business spending Monetary policy Fiscal policy

Initial recovery Business cycle & Asset returns

Early expansion Late expansion Slowdown Recession

f,g. Inflation & Asset returns

h. The Taylor rule

i. The yield curve

J.

Economic growth trends

Components of econ growth trends Application to formulation of CME

k. Exogenous shocks

l. Linkages between economies

Risks

18.2. Capital Market Expectations (Cont.)

m. Emerging markets

Country risk analysis

Econometric analysis

n. Economic forecasting

Economic indicators Checklist approach

Cash instruments Credit risk-free bonds Credit risky bonds

o.p. Economic conditions & asset class returns

Emerging market government bonds Inflation indexed bonds Common stock Emerging market stocks Real estate

q. Forecasting exchange rates

q. Reallocating a global portfolio


ECONOMIC CONCEPTS FOR ASSET VALUATION

Terms

a,c. Cobb-Douglas production function

Used to model growth in real output

c. Used in DDM

Total factor productivity

b. Growth in

Capital stock Labor input

19. Equity Market Valuation DDM

d. Estimating intrinsic value of an equity market by using

Top-down

e. Forecast EPS of index

Bottom-up

f,g. Relative valuation models

Macroeconomic forecasting

BRICs = Brazil, Russia, India & China

Potential economic size & growth Demographics & Per capita income

a. Economic potential of the BRICs

Growth in Global spending Trends in real exchange rates

Potential returns on capital & productivity

b. Economic growth

Appreciating currencies

20. Dreaming With BRICs: The Path To 2050 c. Elements of economic growth

Technological progress

Growth in capital stock

Employment growth

Macroeconomic stability

d. The conditions for sustained economic growth

Institutional efficiency

Open trade

Worker education

e. Emerging markets in a portfolio


ASSET ALLOCATION

Strategic asset allocation

a,b. Compare

Tactical asset allocation

c. Importance of asset allocation for portfolio performance

Asset-only approach

d. Approaches to asset allocation

ALM approach

Advantages over Static asset allocation

e. Dynamic asset allocation

Trade-offs of complexity and cost

Loss aversion

21.1. Asset Allocation

f. Asset allocation policy influenced by

Mental accounting Fear of regret

g. Risk & Return objectives in strategic asset allocation

h. Specifying asset classes

Inflation adjusted securities

j. Theoretical & practical effects of including

Global securities Alternative investments

k. Steps in asset allocation

Efficient frontier Mean- variance

m. Constraint against short sales Resampled efficient frontier

l. Approaches to asset allocation

Black- Litterman

Monte Carlo simulation

ALM

Experience based

21.2. Asset Allocation (Cont.)

i,n. Formulate & justify a strategic asset allocation

Institutional investors Individuals Defined benefit pension plans

o. Strategic asset allocation issues

Endowments Foundations Insurance companies Banks

p. Tactical Asset Allocation (TAA)

Global portfolio risk and return

a. International diversification

International equity market correlations International bond market correlations

d. International efficient frontier

e. Benefits of adding bonds

b. Currency return

c. Currency risk

f. Currency risk and volatility

22. The Case For International Diversification

g. International diversification should not work

Transactions costs Regulations Taxes

h. Barriers to international investing

Currency risk Political risk Market efficiency Lack of familiarity

i. Global vs International investing

j. Emerging markets

Investability Segmentation & Integration of emerging markets

CFA LEVEL 3 STUDY SESSION 9,10

FIXED‐INCOME PORTFOLIO MANAGEMENT

Bond Index

a. Bond portfolio benchmarks

Liabilities

Pure Bond indexing

b. Bond indexing strategies

Enhanced indexing Active investing

c. Criteria for selecting a benchmark bond index

d. Aligning risk exposures

Total return analysis

e. Contrast

23. Fixed Income PMPart 1

Scenario analysis

Warm-up: Duration as a measure of bond portfolio risk

g. Adjusting dollar duration

h. Spread duration

f. Classical immunization

Design a bond immunization strategy Evaluate the strategy under various interest rate scenarios

i. Extensions to classical immunization Interest rate risk j. Immunization risks

Contingent claim risk Cap risk

m. Immunization strategies k. Contrast immunization strategies for

A single liability Multiple liabilities General cash flows

l. Risk minimization vs. return maximization m. Cash flow matching

a. Relative value analysis

b. Cyclical and secular changes

c. Influence of liquidity needs on PM decisions

Yield-spread pickup trades Credit-upside trades Credit-defense trades New issue swaps

d. Rationales for secondary bond trades

24. Relative-value Methodologies For Global Credit Bond PM

Sector-rotation trades Yield curve-adjustment trades Structure trades CF reinvestment

Trading constraints Rationales for not trading

Story disagreement Buy and hold Seasonality

Nominal spread Yield spreads

Swap spreads OAS

e. Assessing relative value methodologies Mean-reversion analysis Spread analysis

Quality-spread analysis Percentage yield spread analysis

Bullet structures Bond structures

Early retirement provisions Credit analysis

a. Effect of leverage on portfolio returns and duration

b. Repurchase agreements

Standard deviation Semivariance

c. Bond risk measures

Shortfall risk Value at risk Futures contracts

d. Advantages of interest rate futures

25. Fixed-Income PM - Part II

e. Immunization strategy based on interest rate futures

f. Use of i/r swaps and options

g. Managing risks with derivatives

h. Sources of excess return for an international bond portfolio i. International bond durations

International bond

j. Hedging decision k. Breakeven spread analysis

Advantages

l. Investing in emerging market debt

m. Selecting a fixed-income manager

Risks

Negative convexity and mortgage securities

a. How a mortgage security's negative convexity affects performance of a hedge

26. Hedging Mortgage Securities To Capture Relative Value

b. Mortgage security risks

Individual mortgage security

c. Importance of Yield curve risk

Treasury security

Duration-based approach

d. Hedging mortgage securities

Interest rate sensitivity approach

CFA LEVEL 3 STUDY SESSION 11, 12

EQUITY PORTFOLIO MANAGEMENT

a. Role of equities in the overall portfolio

Passive

b. Equity investment approaches

Active Semi-active

c. Recommend an equity investment approach

d1. Equity index weighting schemes

d2. Composition of Global Equity Indices

Index Mutual Fund and ETF Separate or Pooled Accounts

e. Methods of passive investing

Equity Futures

27.1. Equity Portfolio Management

Equity Total Return Swap

Full replications

f1. Approaches to constructing an indexed portfolio

Stratified Sampling Optimization

f2. Recommend an approach

g1. Equity investment-style classifications g2. Difficulties in applying style definitions consistently rationales Value investors

Equity style

primary concerns risk

h.

rationales Growth investors

primary concerns risk

i. Style identification

Compare and contrast techniques for identifying investment styles security selection method Characterize the style of an investor given

security holdings returns-based style analysis

j. Equity style indices

k1. Equity style box analysis

k2. Consequences of style drift Use of stock screens based on SRI

l. Socially responsible investing (SRI)

Potential effect on portfolio's style characteristics

long-short

m1. Contrast investment strategies

long-only

m2. Why greater pricing ineffeciency may exist on the short side of the market

n1. How a market-neutral portfolio can be equitized equitized market-neutral portfolios

n2. Contrast

short-extension portfolios

o. Sell disciplines of active investors

27.2. Equity Portfolio Management (cont.)

p1. Contrast enhanced indexing strategies

Derivative-based Stock-based

Enhanced indexing p2. Justify enhanced indexing on the basis of

risk control IR

q. Allocating to managers Core-satellite approach

r.

Completeness fund

True active return

s. Components of total active return

Misfit active return

t. Alpha and beta separation approach

u. Selecting equity managers Top-down approach

v. Equity research

Bottom-up approach

The ways management acts not in the best interest of shareholders

a. Moral hazard

How dysfunctional CG can lead to MH

Explicit managerial incentives

b. Managerial performance incentives

Implicit managerial incentives

Shortcomings of BOD

c.BOD

Improving board oversight

28.Corporate Governance Why active monitoring by investors requires control?

d. Active monitoring

Mechanisms to control Limitations of investor activism

Debt as management motivator

e.Debt and CG

Limitations of debt

f. Stakeholders vs. Stockholders

g.The Cadbury Report

a. Float adjustment

Breadth vs. Investability

Liquidity and crossing opportunities vs. reconstitution effects

29. International Equity Benchmarks

b. International indices: trade-offs

Precise float adjustment vs. Transactions costs from rebalancing

Objectivity and transparency vs. Judgment

Market indices ---> impact on

c. Country classification: Emerging vs. Developed

Investment in the country's capital market

Financial and economic market integration

a. Market integration

Changes resulting from market integration

Market liberalization Vs. market integration

b. Market liberalization

Financial effects of liberalization Economic effects of liberalization

30. Emerging Markets Finance Contagion Non-normal return distributions Market efficiency and market microstructure

c. Issues for emerging market investors

Market efficiency and price discovery Privatizations and the costs of capital Corporate governance Other issues for emerging market investors


ALTERNATIVE INVESTMENTS PORTFOLIO MANAGEMENT

a. Alternative investment features b. Due diligence checkpoints

General

c. Issues for private wealth clients e. Alternative investment benchmarks f. Return enhancement and diversification

Real estate Private Equity Commodities

31.1. Alternative Investments Portfolio Management

Hedge funds

d. Alternative investment groups

Managed futures Buyout funds Infrastructure funds Distressed securities

g. Real estate equity investing

h. Some issues

Major issuers Buyers Stages

Venture Capital investing

i. Contrast

VC funds Buyout funds

j. Convertible preferred stock

k. Structure of PE funds

PE investing

l. PE investment strategy

m. Commodity investment

Direct Indirect

Commodity investing

n. The term structure of future prices o. Commodities and inflation

p. Classifications

31.2. Alternative Investments Portfolio Management

q. Hedge fund structures

Hedge fund

r. Fund of funds s. Hedge fund performance evaluation

Trading strategies

t. Managed futures

Role in a portfolio

u. Discuss

Sources of distressed securities Major investment strategies

Distressed securities investing

Event risk v. Importance of

Market liquidity risk Market risk J-factor risk

Hedging strategies

32. Swaps

Inherent risk exposures

Storability Storage costs

a. Pricing factors

Production Demand

33. Commodity Forwards & Futures b. Commodity arbitrage

c. Basis risk of commodity futures

From convenience yield From commodity spreads

CFA LEVEL 3 STUDY SESSION 14, 15

RISK MANAGEMENT

RM process Risk governance

a. Managing risk

Decentralized system Centralized system (ERM)

b. Evaluate risk management system

c. Characteristics of an effective risk management system

Financial risks

d. Exposures to

Non-financial risks

34.1. Risk Management

e. Interpret and compute Analytical VAR f. Methods

Historical VAR Monte Carlo

VAR

Advantages Limitations IVAR

g. Extensions

CFAR TVAR

VAR and liquidity risk

Forms

Scenario analysis Stressing models

h. Stress testing

Evaluating stress test results

Credit VAR

i. Evaluating credit risk

Forward contract Credit risk of

Swap Option

Risk budgeting Position limits Liquidity limits

j. Managing market risk

Performance stopouts Risk factor limits Scenario analysis limits Leverage limits

Limiting exposures Marking to market

34.2. Risk Management (cont.)

Collateral

k. Managing credit risk

Netting arrangements Credit standards Credit derivatives

Sharpe ratio

l. Measuring risk-adjusted performance

Risk-adjusted return on capital (RAROC) Return over maximum drawdown (RoMAD) Sortino ratio

Nominal position limits VAR-based position limits

m. Setting capital requirements

Maximum loss limit Internal capital requirements and regulatory capital requirements Behavioral conflicts

a. Hedging the principal

b. Minimum Variance Hedge

c. Basis risk

d. Contract terms

e. Hedging multiple currencies

35. Currency Risk Management f. Currency options

g. Currency delta hedging

h. Indirect currency hedging

Balance mandate

i. Currency management

Currency overlay Separate asset allocation

Warm-up: Futures & Forwards

Duration

Futures contract

Yield

The hedge isn't perfect

a. Adjusting the portfolio beta

Index multipliers & synthetic positions

b. Synthetic stock index fund

36. RM Applications Of Forward & Futures Strategies

c. Synthetic cash

Target duration

d. Adjusting the portfolio allocation

Non-zero target duration

Changing equity allocations

e. Adjusting the equity allocation

Pre-investing

f. Exchange rate risk

Hedging market risk

g. Hedging limitations

Hedging currency risk

Warm-up: Basics of put options & call options

Covered calls

a.

Protective puts

Bull call spread

Bear call spread

Butterfly spread with calls

Butterfly spread with puts

b. Option spread strategies

37. RM Applications Of Option Strategies

Put-call parity

Straddle

Collar

Box spread strategy

Interest call

c. I/R options

Interest put

Caps

d. I/R

Floors Collars

e. Delta hedging

f. The second-order gamma effect

a. Using swaps to convert loans from fixed to floating b. Duration of an i/r swap

Interest rate swap

c. Effect on cash flow risk d. Using swaps to change duration

38. RM Applications Of Swap Strategies

e. Issue loan/bond + currency swap

Currency swap

f. Converting foreign cash receipts

g. Equity swaps

Payer swaption

h. I/R swaptions

Receiver swaption


EXECUTION, MONITORING & REBALANCING

Warm-up: the investment process & market microstructure

a. Market & limit orders

b. The effective spread

Quote-driven markets

c. Market structures

Order-driven markets Brokered markets

39.1. Execution Of Portfolio Decisions

d. Brokers & dealers

e. Market quality

f. Execution costs

Explicit costs

g. Implementation shortfall

Realized profit/loss Delay costs Missed trade opportunity cost

h. VWAP vs. Implementation shortfall

i. Econometric models

j. Major trader types

k. Trading tactics

39.2. Execution Of Portfolio Decisions (cont.)

l. Algorithmic trading

m. Choosing an algorithmic trading strategy

n. Best execution

o. Evaluating trading procedures

p. Role of ethics in trading

a. Fiduciary responsibilities

Monitoring investor circumstances Monitoring market/economic conditions Monitoring the portfolio Change in wealth Changing time horizons Changing liquidity requirements Changing tax treatment

b. Monitoring

Laws & regulations New asset alternatives Changes in asset class risks Bull vs. Bear markets The stock market & central bank policy Changes in inflation Changes in asset class expected returns

Changes in wealth Time horizon

c. Changed investor circumstances

Liquidity requirements Tax concerns

40. Monitoring & Rebalancing

Legal & regulatory

d. Benefits & costs of rebalancing

Calendar rebalancing

e,g. Rebalancing

Percentage-of-portfolio rebalancing

Transactions costs

f. Optimal corridor width

Correlations Volatility

Buy-and-hold strategy Constant mix strategy Constant proportion strategy

h,i,j. Dynamic rebalancing strategies

Rebalancing in up & down markets Exposure diagrams of concave (constant mix) vs. convex (CPPI) strategies Convex strategies & concave strategies


PERFORMANCE EVALUATION & ATTRIBUTION

Fund sponsor's perspective

a. Performance evaluation

Investment manager's perspective

Performance measurement

b. Components of portfolio evaluation

Performance attribution Performance appraisal

Money weighted

c. Rates of returns

Time weighted

d. Data quality

Attributable to the market

41.1 Evaluating Portfolio Performance

e. Portfolio return components

f. Benchmark properties

g. Constructing custom security-based benchmarks

h. Validity of using manager universes as benchmarks

i. Tests of benchmark quality

j. Hedge fund benchmarks

Attributable to style Attributable to active management

Macro

k,l. Performance attribution

Micro

m. Fundamental factor models in micro attribution

Effects of i/r

n,o. Fixed income performance attribution

Effects of management

Alpha Information ratio

41.2 Evaluating Portfolio Performance (cont.)

p. Risk-adjusted performance measures

q. Alpha & beta in information ratio, Treynor measure & Sharpe ratio

r. Performance quality control charts

s. Manager continuation policy

t. Type I & type II errors

Treynor measure Sharpe ratio M2

a. Currency movements & portfolio returns

b,c. Global portfolio attribution

d. Active & passive currency management

42. Global Performance Evaluation

e. Multi-period performance attribution

f. Risk measures

g. Risk budgeting in global performance evaluation

h. Global & international benchmarks


GIPS

The creation and evolution of the GIPS Standards Reasons for the creation of GIPS Standards Standards' evolution

a. Discuss Benefits to prospective clients and investment managers

Objectives

b. Discuss

Key characteristics Scope

c. Explain GIPS compliance Requirements

d. Explain inputs data

Recommendations

Requirements

e. Return calculation methodology

Recommendations

f. Composite returns and asset-weighted returns g. Discretionary portfolios Composite Constructing composites

h. Mandates, objectives or strategies i. Adding portfolios and terminating portfolios

43. GIPS j. Asset class segments carved out of multi-class portfolios

k. Disclosure requirements and recommendations

l,m,n. GIPS presentation and reporting requirements

p. Real estate and private equity

o. GIPS for

Requirements Recommendations

q. Wrap fee/Separately Managed Account

r. Valuation hierarchy



s. GIPS advertising guidelines

t. GIPS verification

u. Challenges related to calculation of after-tax return Real estate

v. Errors and omissions in given performance presentations, including

Private equity Wrap fee/SMA