Question

Conduct and critically analyze compensation policy based on information below. You have been employed as the Chief Financial Advisor (CFA) for Safer Investment Corporation. You replace the former CFA as it was found he has not been generating the desired returns for the company and investors. You are managing an Endowment Fund and a Retirement Fund. Investors are looking to earn above-average returns on their investments. These investors have no insurance coverage and have not started to do any estate planning. The age distributions for the investors are as follows:

Age # of clients

28-30 425

31-50 775

51-65 300

65+ 175

Your salary is a combination of basic salary + commission. Commission is based on whether the company and investors achieve the desired return. The salary structure fits your profile as you have built up a reputation as being an aggressive financial advisor who seeks to make everyone happy at all costs.

Question: How will you construct this portfolio and why? Be practical and make use of the information that is available in your local market to gain insights on stocks, bonds, money and foreign exchange market, etc. Assume a country of your choice. What is the advantage and disadvantages of investing the funds in the selected country? Conduct a comprehensive analysis.

Can you also recommend any good books/pdf to get a better understanding of this?

Answer 1

Give details are

Investments- Endowment Fund and Pension Fund

Age group distribution of number of investors

Approach:

Based on investor details identify the expected outcome for different investors. And based on the same prepare a project cashflow plan that shall help you determine the inflow needed from investments to fulfill the cash demands and required rate of returns. Consider factors like endowment funds require payouts the investments shall provide for enough liquidity to give the payouts. While for pension funds the investments shall be more aligned with markets to capture the inflation. The local stocks that trace the inflation % well would be a good choice to invest.

As for foriegn exposure, while its a risk it may be taken up to boost returns, and factors like law, government, demand and future prospects become critical factors for investing.

All investments will be driven by this expectation of returns.

You can refer to books from Prof. Damodran for getting details of such analysis