# Study Session 16: Portfolio Management: Process, Asset Allocation, and Risk Management

## Alt Investment: Carried Interest

For the exam, there are two ways for a fund to pay carried interest as shown below,

1. Carried interest is paid when value of total portfolio (NAV before distributions) > committed capital

2. When the value of investment is over a certain IRR?

I am confused on the second way of calculating carried interest. This method is used when the investments within the portfolio are to be evaluated independently?

## inflation risk factor portfolio question

general question- if we want to hedge against inflation for a fixed income portfolio, would be go long the inflation factor portfolio? and if we want to decrease our sensitivity to inflation for an equity portfolio we would go short the portfolio with a beta of 1 for inflation? kinda confused how these factor portfolios work

wouldnt mind a comprehensive answer from s2000magician right about now ;)

## portfolio management process - planning or execution

Is “selecting an appropriate asset allocation” during planning phase or execution phase?

It looks to me is execution phase but Schweser says it’s planning phase (book 5 page 131)

## Enhanced indexing!

I’m a bit confused in portfolio management so anyone following the forum will know that I’m asking a lot of questions :D

I do not get the below statement;

“A common strategy in bond portfolio management is “Enhanced indexing by matching primary risk factors. This strategy is formulated through creating a tracking portfolio with the same factor sensitivities as the index but with a different set of bonds.

## Expected Return

In the following equation,

R=0.11+1F(inflation)+1.2(un-employment)+E

where expected inflation is 0.051 and un-employment is 0.068

would expected inflation be 11% or 13.2%

## APT

What does this statement mean;

“APT is an equilibrium-pricing model like the CAPM”

## Multifactor Models are time series!

How come that multifactor models be considered a time regression models!

## Calculating parameter for APT (portfolio management)

There is this one question on Schweser. I don’t understand how we are able to use Lambda of one portfolio for another portfolio. Isn’t it suppose to be unique to that specific risk factor?

## Security Selection VS Asset allocation

I need desperate help learning when active return is due to either security selection or asset allocation.

The book says the following..

1. Asset allocation return = from deviations of asset class portfolio weights from benchmark weights.
2. Security selection return - from active returns within asset classes.

## Excess Market Return and Equally weighted industry portfolio

Hi Guys.

I need some assistance about Excess Market Return (EMR) and Equally Weighted Industry Portfolio (EWIP) calculation.  Suppose I want to calculate EMR and EWIP for a given industry ”J”. Whereas, industry “J” consisting of A, B,C firms. what is the step by step procedure for EMR and EWIP calculation?. Your cooperation will be highly appreciated.