Keep The Tips Coming!

Let me start for determining the ideal asset allocation the following steps will help: A) Eliminate all portfolios that do not meet the return requirement B) Eliminate all portfolios that do not meet any shortfall requirements C) Make sure liquidity is met (% in money market devices) D) Examine any restrictions in regard to asset classes positive or negative (avoid heavy concentrations in securities, for defined benefit plans make sure correlation between pension assets and company operations are minimized… etc) D) If above fails, examine sharpe ratio.

E)Eliminate ones with high concentration in sectors/companies Highly Correlated to the Pension Plan or Individuals Employer

this might be basic, but i’d make sure you not only know the formulas for all risk metrics (sharpe, treynor, sortino, msquared, etc.) but also how to explain what the values mean and when each one is most appropriate.

Pension plans might have multi stage time horizon: one for active lives (average time to retirement) one for retired lives (average life span after retirement)

^Hiya I would think that is only for a closed Pension fund, not accepting any new peeps otherwise it would just be 1 stage…right

Grinold-Kroner Model: 3 components: 1) Income Return: %Chg Div. Yield - %chg shares outstanding 2) Repricing: %Chg P/E 3) Nominal Earnings Growth: %Chg Inflation + %Chg real growth ERP is the sum of all 3. This got tested a few years back. Not sure if Schweser ever broke it down like this since all I recall is the full formula.

YMMT GK Model = Return not ERP.

Also, beware of individuals that own a lot of real estate, that while not included in their investable asset base, should be taken into account in asset allocation as they are already overweight. bigwilly - what is YMMT? I know GK is Grinold Kroner.

bigwilly Wrote: ------------------------------------------------------- > ^Hiya I would think that is only for a closed > Pension fund, not accepting any new peeps > otherwise it would just be 1 stage…right Nope, in CFAI book no such distinction is states, it just says so. And me the poor subject of CFA gods try to recite it without giving a meaning:))

Ymmt, I recall that GK uses level of dividend yield, inflation, and growth. Percentage change is only for shares of stock and P/E ratio, and that it is expected return, not premium over RF.

And now going through it again, I am seeing the necessary elements of DC IPS’s. Something in my mind (might be insanity) tells me what if this year they give a DC IPS and ask what is mising? Like responsibilities of Pension Plan Committee etc.

Just a silly question…would you take the real estate value in the total portfolio when calculating required return???

Recipe for a Delicious DC IPS - Distinguish the responsibilities of RPC, the Plan participants, the fund managers, and Plan trustee/record-keeper - Provide descriptions of the investment alternatives - Provide criteria for monitoring and evaluating the performance of investment managers and investment vehicles relative to appropriate investment benchmarks - Provide criteria for manager/fund selection, termination and replacement - Establish effective communication procedures for the fund managers, the trustee/record-keeper, the RPC, and the plan participants.

What is my candidate status after I have been notified that I have passed the Level III exam? Your status becomes “charter pending” after passing the Level III exam; you are not a CFA charterholder until all CFA charter requirements have been met.

I posted on real estate value yesterday in return calculations. It does not look like you use it when determining investable assets. CFAI did not use it in CFAI reading for the Inger Marine example and Q1 AM 2007 did not either so I would not use it.

True, thanks Chi…Just read in another post to exclude any assets on which you don’t earn return like real estate (unless it’s sold I guess)…

bw- It’s not ERP!?! And bchad is correct w/ the % chg statements.

ymmt - GK is for retrun. Singer-Terhaar is for ERP.

CareerChange Wrote: ------------------------------------------------------- > ymmt - GK is for retrun. Singer-Terhaar is for > ERP. This is gonna be a rough week.

Leverage adjusted duration gap (for banks, but of course might be applied in general to portfolios with leverage): DA-(k DL) where k=L/A, the ratio of the market value of liabilities to the market value of assets