Foundation IPS

Return: Depends on time horizon stated for the foundation.

Risk tolerance: Moderate to high, depending on spending rate and time horizon. Usually more aggressive than pension funds.
Liquidity: 5% of assets for Independent and Company sponsored foundations, 85% of dividend and interest income for Operating foundations
and may be subject to spending 3.33% of assets. No spending requirement for Community foundations.
Time horizon: Usually infinite.
Tax considerations: Not taxable with the exception on investment income from private foundations in the U.S.(1%).
Legal/Regulatory: Few. Many states in the U.S. have adopted the Uniform Management Institutional Funds Act as the regulatory framework.
Prudent investor rule generally applies.
Endowment IPS
Return: Usually funded for the purpose of permanently funding an activity. Preserve asset base and use income generated for budget needs.
No specific spending requirement. Balance the need for high current income with long-term protection of principal. Ensure purchasing power is
not eroded by inflation. May use total approach or may strive to minimize spending level volatility.
Risk tolerance: Linked to relative importance of the fund in the sponsor's overall budget picture. Inversely related to dependence on current
income. Exposure to market fluctuation is a major concern. Infinite life means that overall risk tolerance is generally high.
Liquidity: Usually low. High if large outlays (i.e., capital improvements) are expected.
Time horizon: Usually infinite.
Tax considerations: Income is tax-exempt.
Legal/Regulatory: Few. Many states in the U.S. have adopted the Uniform Management Institutional Funds Act as the regulatory framework.
Prudent investor rule generally applies.
Unique needs: Diverse and endowment specific.
Life Insurance Company IPS
Return: Three components: 1) minimum required rate of return statutory rate set by actuarial assumptions; 2) enhanced margin rates of
return or "spread management"; 3)surplus rates of return, where surplus equals total assets total liabilities.
Risk tolerance: Specific factors include: market volatility adversely impacts asset valuation, a low tolerance of any loss of income or delays in
collecting income, reinvestment risk is a major concern, and credit quality is associated with timely payment of income and principal.
Liquidity: Need to address three primary concerns: disintermediation, asset-liability mismatches, and asset marketability risk.
Time horizon: Traditionally 20-40 years, but progressively shorter as the duration of liabilities have decreased due to increased interest rate
volatility and competitive market factors.
Tax considerations: Taxes are a major consideration. Two parts for tax purposes: policyholder's share is not taxed; funds transferred to the
surplus are taxed.
Legal/Regulatory: Heavily regulated at the state level. Regulations relate to eligible investments, prudent person rule, and valuation methods.

Unique needs: Diversity of product offerings, company size, and level of asset surplus.
Nonlife Insurance Company IPS
Return: Greater uncertainty regarding claims, but not as interest rate sensitive. Fixed income component should maximize the return for
meeting claims. Equity segment should grow the surplus/supplement funds for liability claims. Impacted by: competitive pricing policy,
profitability, growth of surplus, after-tax returns, and total return.
Risk tolerance: Risk must be tempered by the liquidity requirements. Inflation risk is a big concern because of replacement cost policies. Cash
flow characteristics are unpredictable. Many companies have self-imposed ceilings on the common stock to surplus ratio.
Liquidity: Relatively high.
Time horizon: Short, due to nature of claims.
Tax considerations: Taxes play an important role; frequent contact with tax counsel is advised.
Legal/Regulatory: Considerable leeway in choosing investments. Regulations less onerous than for life-insurance companies.
Unique needs: The financial status of the firm and the management of the investment risk and liquidity requirements influence the IPS.
Bank IPS
Return: The return objective for the bank's securities portfolio is primarily to generate a positive interest rate spread.
Risk: The most important concern is meeting liabilities, and the bank cannot let losses in the securities portfolio interfere with that. Therefore, its
tolerance for risk is below average.
Time horizon: Bank liabilities are usually fairly short term, so securities in the portfolio should be of short to intermediate maturity/duration.
Liquidity: Since banks require regular liquidity to meet liabilities and new loan requests, the securities must be liquid.
Tax: Banks are taxable entities.
Legal and regulatory: Banks are highly regulated and required to maintain liquidity, reserve requirements, and pledge against certain deposits.
Unique circumstances: Some potential unique circumstances include lack of diversification or lack of liquidity in the loan portfolio.

Ethics
+ Wait to buy/sell until public media = OK
+ Market impact selling/buying something illiquid without bad intention = OK
+ Not attributing original author (even with his approval= VIOLATION
+ Legal does not imply ethical
+ Gifts from clients should be disclosed to the employer, which will determine if affects independence and objectivity
+ IV B = additional compensation agreements = written consent from all parties involved + nature, amount, duration
+ Guarantee something (wrong) = VIOLATION
+ IPS = at least annually and prior to material changes
+ Compliance officer reports to CEO or Board of Directors
+ Info de clients to fellow employees involved = OK
+ If beneficial owner, act only AFTER clients and employers
+ Disclosure in research report of being beneficial owner = OK
+ Not enrolled = not a candidate
+ Small fee for something not related to professional activities without conflict = No disclosure necessary
+ But if the situation creates a conflict, written consent necessary
+ AMC = disclose fees and other costs, management fee, incentive fee, commissions

+ Disclosure of using simulated data = OK

+ AMC = disclose proxy voting policy
+ Pro rata = on the basis of order size
+ AMC = disclose regulatory actions
+ AMC = disclose significant changes in organization
+ Intern = employee (for IV A)
+ Creating new company during your free time (while employed) = OK
+ Supervisors: investigation first
+ Compliance approval of something bad does not mean you are free to do it
+ Discovering that some report has an error and is going to be public = tell supervisor (and eventually dissociate + legal advice)
+ Law Vs CFA: follow the stricter one
+ Trips: dont accept payments (except when really necessary). Use judgement
+ Dont accept pressure from IB
+ Disclosure of client gifts
+ Dont write issuer paid research if compensation includes bonus for new investors buying the underlying
+ Dont exaggerate what you / your firm can do
+ Research: if you receive compensation, disclosure necessary (you would not be independent)
+ Typo = OK, but if discovered you must take necessary steps
+ Acknowledgement when quoting other peoples work
+ Testing and modifying a model = still not yours, credit the original author
+ Copying plain language, basics = VIOLATION
+ Quote original source or second + original source
+ Civil disobedience = ok
+ If source = unreliable, info is not material
+ Mosaic theory = OK
+ Liquidity pumping = OK if disclosed
+ If client = pension, client = workers, not management
+ Client brokerage that does not benefit the client + not getting best execution = VIOLATION
+ Tell change of recommendation to ALL clients
+ Disclose trade allocation policy to clients and prospects
+ Disclosure of wrong practice does not mean you can do it
+ Sharing your view (more positive or negative) with only a few clients = VIOLATION
+ Suitability depends on portfolio, not a single asset
+ If using performance from previous job, disclosure necessary
+ Client doing something illegal = supervisor, legal counsel to check if notification to regulator is required
+ Employee-led buyout = OK
+ Dont take with you software, even if you created it
+ Contacting public clients = OK
+ Time consuming second job = permission from employer
+ Bonus from clients = disclosure to employer
+ Based on the fact = usually a violation
+ Group research: document the difference of opinion and request to remove his name
+ Notify change in investment process
+ 7yr records RECOMMENDED
+ Your family = any other client
+ Disclosure of referral fees to employer, clients and prospects
+ You change recommendation but receive a order (contrary) = advise the customer before accepting the order
+ IB client = put the stock on restricted list and give only factual info
+ Written consent from employer if independent practice that competes
+ Dont contact clients before leaving for new firm or start independent practice
+ AMC specific for companies, CFA code can be part of a companys code of ethics
+ Disclosure of ALL conflicts, not only those related to CURRENT portfolio holdings
+ Receiving an order contrary to IPS = inform investor that you can not do it
+ If compliance system is wrong, decline supervisor responsibilities
+ Historical data that actually happened = fact
+ Personal trade 1 week after report = acceptable
+ Sharing equity and bond research = ok
+ s&p = public info you can use without quoting
+ Ultimate responsibility for compliance = compliance officer
+ Current viable PROSPECTS = current clients, dont contact them
+ Rejected PROSPECTS = you can call them, ok
+ Little details of models, algorithms = proprietary details, not disclosure necessary

+ Somebody accidentally tells inside info = try to convince him to make it public
+ a Chartered Financial Analyst = VIOLATION
+ Tell personal details to the clients family = VIOLATION
+ Missing important news about a company you research = VIOLATION
+ No limit to value of gift received from a client if you have permission
+ Internal meetings: talk about clients WITHOUT saying names, for confidentiality

Assumed

Bank's asset > its liability

Living Expense is after-tax if not mentioned.
The yield curve is steepening from a normal upwards (not inverted) shape.
Endowment and pension plan are not taxable entities.
For pension-adjusted WACC calculations: The plan is fully funded.
Balanced portfolio can include asset classes, such as equities and bonds.
To calculate WACC, the beta of debt/liability is 0.
"Additional compensation arrangements" is about conflict of interest between employee and employer...Nothing to do with the clients.
enforces policies of investment and non-investment related activities equally. (mandatory vacations...)
Sharpe ratio(global market)=Sharpe ratio(local market).
The market portfolio has the highest Sharpe ratio on the efficient frontier.
real interest rate is the same across countries if not specified;
real interest rate growth => currency appreciation.
inverted yield curve => interest rate will fall.
steep yield curve => interest rate will rise.
The breakeven price of a zero-cost collar is: the stock price at time 0
The issuer of a callable bond bought a call.
With black-letterman model, 1) the manager would weight her portfolio the same as the world-wide asset class weight if the manager has no
particular expectations about the asset class. -- the active weight is 0. This is what the passive strategy has in equity portfolio management.
2) the investor who holds the market portfolio has average risk tolerance.
With active strategy, the manager could set weight to 0 if no opinion.