I think there might have been a thread like this posted before but I just can’t seem to find it, if someone knows where to find it please let me know, thanks. Basically there’s a question in CFAi for choosing the portfolio best suited for the pension plan of a high-tech company. In the IPS, the client states that the investment portfolio should focus on “businesses directly related” to the “main business” to leverage their knowledge base. I thought that means we should choose a portfolio that’s similar to client’s business (i.e. more high tech investments), but the answer says to pick a more conservative portfolio, the one that is less correlated with client’s business. I understand the answer, but wonder if we should still respect the client’s wishes? Is this the case where we should discuss with the client how the IPS doesn’t make sense for them?
In this case the client in question is the company’s pension plan. The manager talks to the CEO or CFO or someone who says they need to invest in assets that have correlations with the firm’s operations. But remember you have a fiduciary responsibility to manage the assets for the pension’s beneficiaries? So you tell the CFO or CEO to STFU and invest in assets that have low correlations with the firm’s operations. Hope that helps.
Haha… yes, that makes sense. Thanks sparty.