Tiêu đề Level III V5 LM04 Essay Quiz Solution.pdf ✅

Level III Investment Manager Selection Essay Quiz Solution Copyright © IFT. All rights reserved www.ift.world Page 1 Topic: Portfolio Management and Wealth Planning Mattsson Collin Case Scenario. Minutes: 18 Part A i. Collin should run a returns-based style analysis (RBSA) to determine the investment process of the small-cap value fund. Justification: RBSA is a straightforward analysis and typically does not require a large amount of additional or difficult to acquire data. 1. RBSA identifies the important drivers of return and risk factors for the period analyzed and can be estimated even for complicated strategies. 2. The process is comparable across managers and time and provides an objective style check not subject to window dressing. 3. The analysis can be run immediately after the data is available, particularly in the case of publicly traded securities. ii. Disadvantages: RBSA 1. It is an imprecise tool. The computational effort required is not onerous, but accuracy may be compromised because RBSA effectively attributes the performance to an unchanging average portfolio during the period. 2. If the portfolio contains illiquid securities, stale prices may understate the risk of the strategy. HBSA 1. It is difficult to compute if the strategy is complex and depends on the timing and degree of transparency provided by the manager. The computational complexity increases with less transparent strategies. 2. The analysis results may be compromised because the portfolio reflects a snapshot in time and might not reflect the portfolio going forward, particularly for high-turnover strategies. 3. If the portfolio has illiquid securities, stale pricing may underestimate the risk exposure of the strategy. Part B i. The L/S hedge fund has a 12-month hard lock arrangement as it allows for no redemptions during this time. ii. A hedge fund is the most liquid among the limited partnership investment vehicles. A hedge fund’s liquidity can be restricted because of lockups and gates. An investor cannot redeem in case of a hard lock that can last up to a certain period, say 12 months. However, in a soft lock, redemptions are allowed subject to a fee paid into the fund. Gates limit the amount of funds or assets that can be redeemed at one redemption date. Private equity and venture capital funds provide the least liquidity. Investors are contractually