2022 CFA Program Curriculum Level III Box Set E-Book
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- Herausgeber: John Wiley & Sons
- Kategorie: Fachliteratur
- Sprache: Englisch
Prepare for success on the 2022 CFA Level III exam with the latest official CFA¯® Program Curriculum. The 2022 CFA Program Curriculum Level III Box Set contains all the material you need to succeed on the Level III CFA exam in 2022. This set includes the full official curriculum for Level III and is part of the larger CFA Candidate Body of Knowledge (CBOK). Designed to acclimate you to the exam's heavy reliance on information synthesis and solution application regarding portfolio management and wealth planning, the Level III curriculum will help you master both calculation-based and word-based problems. Highly visual and intuitively organized, this box set allows you to: * Learn from financial thought leaders. * Access market-relevant instruction. * Gain critical knowledge and skills. The set also includes practice questions to assist with your recall of key terms, concepts, and formulas. Perfect for anyone preparing for the 2022 Level III CFA exam, the 2022 CFA Program Curriculum Level III Box Set is a must-have resource for those seeking the advanced skills required to become a Chartered Financial Analyst¯®.
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Table of Contents
Cover
Copyright Page
Table of Contents
2022 CFA Program Level III Volume 1: Behavioral Finance, Capital Market Expectations, and Asset Allocation
Title Page
Table of Contents
How to Use the CFA Program Curriculum
Background on the CBOK
Organization of the Curriculum
Features of the Curriculum
End of Reading Questions/Solutions
Glossary
LOS Self-Check
Source Material
Errata
Designing Your Personal Study Program
Create a Schedule
CFA Institute Learning Ecosystem (LES)
Structured and Adaptive Study Plans
Flashcards and Game Center
Discussion Board
Practice Question Bank
Mock Exams
Prep Providers
Feedback
Portfolio Management
Study Sessions
Topic Level Learning Outcome
Study Session 1. Behavioral Finance
Reading Assignments
Reading 1. The Behavioral Biases of Individuals
Learning Outcomes
1. Introduction and Categorizations of Behavioral Biases
1.1. Categorizations of Behavioral Biases
1.2. Differences between Cognitive Errors and Emotional Biases
2. Cognitive Errors: Belief Perseverance Biases: Conservation Bias and Confirmation Bias
2.1. Belief Perseverance Biases
2.1.1. Conservatism Bias
Consequences of Conservatism Bias
Detection of and Guidance for Overcoming Conservatism Bias
2.1.2. Confirmation Bias
Consequences of Confirmation Bias
Detection of and Guidance for Overcoming Confirmation Bias
3. Cognitive Errors: Belief Perseverance Biases – Representativeness
3.1. Base-Rate Neglect
3.2. Sample-Size Neglect
3.3. Consequences of Representativeness Bias
3.4. Detection of and Guidance on Overcoming Representativeness Bias
4. Cognitive Errors: Belief Perseverance Biases - Illusion of Control Bias and Hindsight Bias
4.1. Illusion of control bias
Consequences of Illusion of Control
Detection of and Guidelines for Overcoming Illusion of Control Bias
4.2. Hindsight Bias
Consequences of Hindsight Bias
Detection of and Guidelines for Overcoming Hindsight Bias
5. Cognitive Errors: Information Processing Biases
5.1. Anchoring and Adjustment Bias
Consequences of Anchoring and Adjustment Bias
Detection of and Guidelines for Overcoming Anchoring and Adjustment Bias
5.2. Mental Accounting Bias
Consequences of Mental Accounting Bias
Detection of and Guidelines for Overcoming Mental Accounting Bias
5.3. Framing Bias
Consequences of Framing Bias
Detection of and Guidelines for Overcoming Framing Bias
5.4. Availability Bias
Retrievability
Categorization
Narrow Range of Experience
Resonance
Consequences of Availability Bias
Detection of and Guidelines for Overcoming Availability Bias
5.5. Cognitive Errors: Conclusion
6. Emotional Biases: Loss Aversion
6.1. Loss-Aversion Bias
Consequences of Loss Aversion
Special Application: Myopic Loss Aversion
Detection of and Guidelines for Overcoming Loss Aversion
7. Emotional Biases: Overconfidence & Self Control
7.1. Overconfidence Bias
Consequences of Overconfidence Bias
Detection of and Guidelines for Overcoming Overconfidence Bias
7.2. Self-Control Bias
Consequences of Self-Control Bias
Detection of and Guidelines for Overcoming Self-Control Bias
8. Emotional Biases: Status Quo, Endowment, and Regret-Aversion
8.1. Status Quo Bias
Consequences of Status Quo Bias
Detection of and Guidelines for Overcoming Status Quo Bias
8.2. Endowment Bias
Consequences of Endowment Bias
Detection of and Guidelines for Overcoming Endowment Bias
8.3. Regret-Aversion Bias
Consequences of Regret-Aversion Bias
Detection of and Guidelines for Overcoming Regret-Aversion Bias
8.4. Emotional Biases: Conclusion
Summary
References
Practice Problems
Solutions
Reading 2. Behavioral Finance and Investment Processes
Learning Outcomes
1. Introduction and General Discussion of Investor Types
1.1. General Discussion of Investor Types
1.1.1. Barnewall Two-Way Model
1.1.2. Bailard, Biehl, and Kaiser Five-Way Model
2. New Developments in Psychographic Modeling: Behavioral Investor Types
2.1. The Behavioral Alpha Process: A Top-Down Approach
Step 1: Interview the client and identify active or passive traits and risk tolerance.
Step 2: Plot the investor on the active/passive and risk tolerance scale.
Step 3: Test for behavioral biases.
Step 4: Classify investor into a behavioral investor type.
Advising Passive Preservers:
Advising Friendly Followers:
Advising Independent Individualists:
Advising Active Accumulators:
2.2. Limitations of Classifying Investors into Various Types
3. How Behavioral Factors Affect Adviser-Client Relations
3.1. Formulating Financial Goals
3.2. Maintaining a Consistent Approach
3.3. Investing as the Client Expects
3.4. Ensuring Mutual Benefits
3.5. Limitations of Traditional Risk Tolerance Questionnaires
4. How Behavioral Factors Affect Portfolio Construction
4.1. Inertia and Default
4.2. Naïve Diversification
4.3. Company Stock: Investing in the Familiar
4.4. Excessive Trading
4.5. Home Bias
4.6. Behavioral Portfolio Theory
5. Behavioral Finance and Analyst Forecasts and Overconfidence in Forecasting Skills
5.1. Overconfidence in Forecasting Skills
5.1.1. Remedial Actions for Overconfidence and Related Biases
6. Influence of Company’s Management on Analysis and Analyst Biases in Conducting Research
6.1. Remedial Actions for Influence of Company’s Management on Analysis
6.2. Analyst Biases in Conducting Research
6.3. Remedial Actions for Analyst Biases in Conducting Research
7. How Behavioral Factors Affect Committee Decision Making
7.1. Investment Committee Dynamics
7.2. Techniques for Structuring and Operating Committees to Address Behavioral Factors
8. How Behavioral Finance Influences Market Behavior
8.1. Defining Market Anomalies
8.2. Momentum
8.3. Bubbles and Crashes
8.4. Value and Growth
Summary
References
Practice Problems
Solutions
Study Session 2. Capital Market Expectations
Reading Assignments
Reading 3. Capital Market Expectations, Part 1: Framework and Macro Considerations
Learning Outcomes
1. Introduction & Framework for Developing Capital Market Expectations
1.1. Framework and Challenges
1.1.1. A Framework for Developing Capital Market Expectations
2. Challenges in Forecasting
2.1. Limitations of Economic Data
2.2. Data Measurement Errors and Biases
2.3. The Limitations of Historical Estimates
2.4. Ex Post Risk Can Be a Biased Measure of Ex Ante Risk
2.5. Biases in Analysts’ Methods
2.6. The Failure to Account for Conditioning Information
2.7. Misinterpretation of Correlations
2.8. Psychological Biases
2.9. Model Uncertainty
3. Economic and Market Analysis: The Role of Economic Analysis and Analysis of Economic Growth: Exogenous Shocks to Growth
3.1. The Role of Economic Analysis
3.2. Analysis of Economic Growth
3.2.1. Exogenous Shocks to Growth
4. Applying Growth Analysis to Capital Market Expectations
4.1. A Decomposition of GDP Growth and Its Use in Forecasting
4.2. Anchoring Asset Returns to Trend Growth
5. Approaches to Economic Forecasting
5.1. Econometric Modeling
5.2. Economic Indicators
5.3. Checklist Approach
5.4. Economic Forecasting Approaches: Summary of Strengths and Weaknesses
6. Business Cycle Analysis, Phases of the Business Cycle and Market Expectations and the Business Cycle
6.1. Phases of The Business Cycle
6.2. Market Expectations and the Business Cycle
7. Inflation and Deflation: Trends and Relations to the Business Cycle
8. Analysis of Monetary and Fiscal Policies
8.1. Monetary Policy
9. What Happens When Interest Rates Are Zero or Negative? And Implications of Negative Rates for Capital Market Expectations
9.1. Implications of Negative Interest Rates for Capital Market Expectations
10. The Monetary and Fiscal Policy Mix and the Shape of the Yield Curve and the Business Cycle
10.1. The Shape of the Yield Curve and the Business Cycle
11. International Interactions
11.1. Macroeconomic Linkages
11.2. Interest Rate/Exchange Rate Linkages
Summary
References
Practice Problems
Solutions
Reading 4. Capital Market Expectations, Part 2: Forecasting Asset Class Returns
Learning Outcomes
1. Introduction
2. Overview of Tools and Approaches
2.1. The Nature of the Problem
2.2. Approaches to Forecasting
2.2.1. Statistical Methods
2.2.2. Discounted Cash Flow
2.2.3. Risk Premium Models
3. Forecasting Fixed Income Returns
3.1. Applying DCF to Fixed Income
3.2. The Building Block Approach to Fixed-Income Returns
3.2.1. The Short-term Default-free Rate
3.2.2. The Term Premium
3.2.3. The Credit Premium
3.2.4. The Liquidity Premium
4. Risks in Emerging Market Bonds
4.1. Economic Risks/Ability to Pay
4.2. Political and Legal Risks/Willingness to Pay
5. Forecasting Equity Returns
5.1. Historical Statistics Approach to Equity Returns
5.2. DCF Approach to Equity Returns
5.3. Risk Premium Approaches to Equity Returns
5.3.1. Defining and Forecasting the Equity Premium
5.3.2. An Equilibrium Approach
5.4. Risks in Emerging Market Equities
6. Forecasting Real Estate Returns
6.1. Historical Real Estate Returns
6.2. Real Estate Cycles
6.3. Capitalization Rates
6.4. The Risk Premium Perspective on Real Estate Expected Return
6.5. Real Estate in Equilibrium
6.6. Public vs. Private Real Estate
6.7. Long-Term Housing Returns
7. Forecasting Exchange Rates
7.1. Focus on Goods and Services, Trade, and the Current Account
7.1.1. Trade Flows
7.1.2. Purchasing Power Parity
7.1.3. Competitiveness and Sustainability of the Current Account
7.2. Focus on Capital Flows
7.2.1. Implications of Capital Mobility
7.2.2. Uncovered Interest Rate Parity and Hot Money Flows
7.2.3. Portfolio Balance, Portfolio Composition, and Sustainability Issues
8. Forecasting Volatility
8.1. Estimating a Constant VCV Matrix with Sample Statistics
8.2. VCV Matrices from Multi-Factor Models
8.3. Shrinkage Estimation of VCV Matrices
8.4. Estimating Volatility from Smoothed Returns
8.5. Time-Varying Volatility: ARCH Models
9. Adjusting a Global Portfolio
9.1. Macro-Based Recommendations
Trend Growth
Global Integration
Phases of the Business Cycle
Monetary and Fiscal Policies
Current Account Balances
Capital Accounts and Currencies
9.2. Quantifying the Views
Summary
References
Practice Problems
Solutions
Study Session 3. Asset Allocation and Related Decisions in Portfolio Management
Reading Assignments
Reading 5. Overview of Asset Allocation
Learning Outcomes
1. Introduction and Asset Allocation: Importance in Investment Management
1.1. Asset Allocation: Importance in Investment Management
2. The Investment Governance Background to Asset Allocation
2.1. Governance Structures
2.2. Articulating Investment Objectives
2.3. Allocation of Rights and Responsibilities
2.4. Investment Policy Statement
2.5. Asset Allocation and Rebalancing Policy
2.6. Reporting Framework
2.7. The Governance Audit
3. The Economic Balance Sheet and Asset Allocation
4. Approaches to Asset Allocation, Relevant Objectives and Relevant Risk Concepts
4.1. Relevant Objectives
4.2. Relevant Risk Concepts
5. Modeling Asset Class Risk
6. Strategic Asset Allocation
7. Strategic Asset Allocation: Asset Only
8. Strategic Asset Allocation: Liability Relative
9. Strategic Asset Allocation: Goals Based
10. Implementation Choices
10.1. Passive/Active Management of Asset Class Weights
10.2. Passive/Active Management of Allocations to Asset Classes
10.3. Risk Budgeting Perspectives in Asset Allocation and Implementation
11. Rebalancing: Strategic considerations
11.1. A Framework for Rebalancing
11.2. Strategic Considerations in Rebalancing
Summary
References
Practice Problems
Solutions
Reading 6. Principles of Asset Allocation
Learning Outcomes
1. Introduction
2. Developing Asset-Only Asset Allocations; and Mean-Variance Optimization: Overview
2.1. Mean–Variance Optimization: Overview
3. Monte Carlo Simulation
4. Criticisms of Mean-Variance Optimization
5. Addressing the Criticisms of Mean-Variance Optimization; Reverse Optimization and Black Litterman Model
5.1. Reverse Optimization
5.2. Black–Litterman Model
6. Addressing the Criticisms of Mean-Variance Optimization; Adding Constraints beyond Budget Constraints, Resampled Mean-Variance Optimizations and Other Non-Normal Optimization Approaches
6.1. Resampled Mean–Variance Optimization
6.2. Other Non-Normal Optimization Approaches
7. Allocating to Less Liquid Asset Classes
8. Risk Budgeting
9. Factor-Based Asset Allocation
10. Developing Liability-Relative Asset Allocations; and Characterizing the Liabilities
10.1. Characterizing the Liabilities
11. Approaches to Liability-Relative Asset Allocation; and Surplus Optimization
11.1. Surplus Optimization
12. Approaches to Liability-Relative Asset Allocation
12.1. Hedging/Return-Seeking Portfolio Approach
Forming the Hedging Portfolio
Limitations
12.2. Integrated Asset–Liability Approach
12.3. Comparing the Approaches
13. Examining the Robustness of Asset Allocation Alternatives
14. Factor Modeling in Liability-Relative Approaches
15. Developing Goals-Based Asset Allocations. The Goals-Based Asset Allocation Process and Describing Client Goals.
15.1. The Goals-Based Asset Allocation Process
15.2. Describing Client Goals
16. Constructing Sub-Portfolios and the Overall Portfolio
16.1. The Overall Portfolio
17. Revisiting the Module Process in Detail
18. Periodically Revisiting the Overall Asset Allocation and Issues Related to Goals-Based Asset Allocation
18.1. Issues Related to Goals-Based Asset Allocation
19. Heuristics and Other Approaches to Asset Allocation
19.1. The “120 minus your age” rule
19.2. The 60/40 stock/bond heuristic
19.3. The endowment model
19.4. Risk parity
19.5. The 1/N rule
20. Portfolio Rebalancing in Practice
Summary
References
Practice Problems
Solutions
Reading 7. Asset Allocation with Real-World Constraints
Learning Outcomes
1. Introduction
2. Constraints in Asset Allocation and Asset Size
2.1. Asset Size
3. Liquidity
4. Time Horizon
4.1. Changing Human Capital
4.2. Changing Character of Liabilities
5. Regulatory and Other External Constraints
5.1. Insurance Companies
5.2. Pension Funds
5.3. Endowments and Foundations
5.4. Sovereign Wealth Funds
6. Asset Allocation for the Taxable Investor and After-Tax Portfolio Optimization
6.1. After-Tax Portfolio Optimization
7. Taxes and Portfolio Rebalancing and Strategies to Reduce Tax Impact
7.1. Strategies to Reduce Tax Impact
8. Revising the Strategic Asset Allocation
8.1. Goals
8.2. Constraints
8.3. Beliefs
9. Short-Term Shifts in Asset Allocation
9.1. Discretionary TAA
9.2. Systematic TAA
10. Dealing with Behavioral Biases in Asset Allocation
10.1. Loss Aversion
10.2. Illusion of Control
10.3. Mental Accounting
10.4. Representativeness Bias
10.5. Framing Bias
10.6. Availability Bias
Summary
References
Practice Problems
Solutions
Glossary
A
B
C
D
E
F
G
H
I
K
L
M
N
O
P
Q
R
S
T
U
V
W
Y
Z
2022 CFA Program Level III Volume 2: Derivatives, Currency Management, and Fixed Income
Title Page
Table of Contents
How to Use the CFA Program Curriculum
Background on the CBOK
Organization of the Curriculum
Features of the Curriculum
End of Reading Questions/Solutions
Glossary
LOS Self-Check
Source Material
Errata
Designing Your Personal Study Program
Create a Schedule
CFA Institute Learning Ecosystem (LES)
Structured and Adaptive Study Plans
Flashcards and Game Center
Discussion Board
Practice Question Bank
Mock Exams
Prep Providers
Feedback
Portfolio Management
Study Sessions
Topic Level Learning Outcome
Study Session 4. Derivatives and Currency Management
Reading Assignments
Reading 8. Options Strategies
Learning Outcomes
1. Introduction
2. Position Equivalencies
2.1. Synthetic Forward Position
2.2. Synthetic Put and Call
3. Covered Calls and Protective Puts
3.1. Investment Objectives of Covered Calls
3.1.1. Market Participant #1: Yield Enhancement
3.1.2. Market Participant #2: Reducing a Position at a Favorable Price
3.1.3. Market Participant #3: Target Price Realization
3.1.4. Profit and Loss at Expiration
4. Investment Objectives of Protective Puts
4.1. Loss Protection/Upside Preservation
4.2. Profit and Loss at Expiration
5. Equivalence to Long Asset/Short Forward Position
5.1. Writing Puts
6. Risk Reduction Using Covered Calls and Protective Puts
6.1. Covered Calls
6.2. Protective Puts
6.3. Buying Calls and Writing Puts on a Short Position
7. Spreads and Combinations
7.1. Bull Spreads and Bear Spreads
7.1.1. Bull Spread
7.1.2. Bear Spread
7.1.3. Refining Spreads
7.1.3.1. Adding a Short Leg to a Long Position
7.1.3.2. Spreads and Delta
8. Straddle
8.1. Collars
8.1.1. Collars on an Existing Holding
8.1.2. The Risk of a Collar
8.1.3. The Risk of Spreads
8.2. Calendar Spread
9. Implied Volatility and Volatility Skew
10. Investment Objectives and Strategy Selection
10.1. The Necessity of Setting an Objective
10.2. Criteria for Identifying Appropriate Option Strategies
11. Uses of Options in Portfolio Management
11.1. Covered Call Writing
Solution:
11.2. Put Writing
Solution:
Scenario A:
Scenario B:
11.3. Long Straddle
Solution:
11.4. Collar
Solution:
11.5. Calendar Spread
Solution to 1:
Solution to 2:
Scenario 1:
Scenario 2:
Scenario 3:
Scenario 4:
12. Hedging an Expected Increase in Equity Market Volatility
Solution to 1:
Solution to 2:
Solution to 3:
12.1. Establishing or Modifying Equity Risk Exposure
12.1.1. Long Call
Solution:
12.1.2. Risk Management: Protective Put Position
Situation A: Before Relais Corporation’s quarterly earnings release:
Solution to 1:
Situation B: One week later, just after Relais Corporation’s earnings release:
Solution to 2:
Summary
Practice Problems
Solutions
Reading 9. Swaps, Forwards, and Futures Strategies
Learning Outcomes
1. Managing Interest Rate Risk with Swaps
1.1. Changing Risk Exposures with Swaps, Futures, and Forwards
1.1.1. Managing Interest Rate Risk
1.1.1.1. Interest Rate Swaps
2. Managing Interest Rate Risk with Forwards, Futures and Fixed-Income Futures
2.1. Fixed-Income Futures
3. Managing Currency Exposure
3.1. Currency Swaps
3.2. Currency Forwards and Futures
4. Managing Equity Risk
4.1. Equity Swaps
4.2. Equity Forwards and Futures
4.3. Cash Equitization
5. Volatility Derivatives: Futures and Options
5.1. Volatility Futures and Options
6. Volatility Derivatives: Variance Swaps
7. Using Derivatives to Manage Equity Exposure and Tracking Error
Solution:
Scenario A:
Scenario B:
7.1. Cash Equitization
Scenario: Three months later, the FTSE 100 Index has increased by 5%.
8. Using Derivatives in Asset Allocation
8.1. Changing Allocations between Asset Classes Using Futures
Solution to 1:
Solution to 2:
Solution to 3:
8.2. Rebalancing an Asset Allocation Using Futures
Solution:
8.3. Changing Allocations between Asset Classes Using Swaps
Solution:
9. Using Derivatives to Infer Market Expectations
9.1. Using Fed Funds Futures to Infer the Expected Average Federal Funds Rate
9.2. Inferring Market Expectations
Solution to 1:
Solution to 2:
Summary
Practice Problems
Solutions:
Reading 10. Currency Management: An Introduction
Learning Outcomes
1. Introduction
2. Review of Foreign Exchange Concepts
2.1. Spot Markets
2.2. Forward Markets
2.3 FX Swap Markets
2.4. Currency Options
3. Currency Risk and Portfolio Risk and Return
3.1. Return Decomposition
3.2. Volatility Decomposition
4. Strategic Decisions in Currency Management: Overview
4.1. The Investment Policy Statement
4.2. The Portfolio Optimization Problem
4.3. Choice of Currency Exposures
4.3.1. Diversification Considerations
4.3.2. Cost Considerations
5. Strategic Decisions in Currency Management: Spectrum of Currency Risk Management Strategies
5.1. Passive Hedging
5.2. Discretionary Hedging
5.3. Active Currency Management
5.4. Currency Overlay
6. Strategic Decisions in Currency Management: Formulating a Currency Management Program
7. Active Currency Management: Based on Economic Fundamentals, Technical Analysis and the Carry Trade
7.1. Active Currency Management Based on Economic Fundamentals
7.2. Active Currency Management Based on Technical Analysis
7.3. Active Currency Management Based on the Carry Trade
8. Active Currency Management: Based on Volatility Trading
9. Currency Management Tools: Forward Contracts, FX Swaps and Currency Options
9.1. Forward Contracts
9.1.1. Hedge Ratios with Forward Contracts
9.1.2. Roll Yield
9.2. Currency Options
10. Currency Management Strategies
10.1. Over-/Under-Hedging Using Forward Contracts
10.2. Protective Put Using OTM Options
10.3. Risk Reversal (or Collar)
10.4. Put Spread
10.5. Seagull Spread
10.6. Exotic Options
10.7. Section Summary
11. Hedging Multiple Foreign Currencies
11.1. Cross Hedges and Macro Hedges
11.2. Minimum-Variance Hedge Ratio
11.3. Basis Risk
12. Currency Management Tools and Strategies: A Summary
13. Currency Management for Emerging Market Currencies
13.1. Special Considerations in Managing Emerging Market Currency Exposures
13.2. Non-Deliverable Forwards
Summary
References
Practice Problems
Solutions
Study Session 5. Fixed-Income Portfolio Management (1)
Reading Assignments
Reading 11. Overview of Fixed-Income Portfolio Management
Learning Outcomes
1. Introduction
2. Roles of Fixed-Income Securities in Portfolios
2.1. Diversification Benefits
2.2. Benefits of Regular Cash Flows
2.3. Inflation-Hedging Potential
3. Classifying Fixed-Income Mandates
3.1. Liability-Based Mandates
3.2. Total Return Mandates
3.3. Fixed-Income Mandates with ESG Considerations
4. Fixed-Income Portfolio Measures
4.1. Portfolio Measures of Risk and Return
4.2. Correlations between Fixed-Income Sectors
4.3. Use of Measures of Risk and Return in Portfolio Management
4.3.1. Portfolio Duration in Total Return Mandates
4.3.2. Managing Credit Exposure Using Spread Duration
4.3.3. Relative Value Concept
5. Bond Market Liquidity
5.1. Liquidity among Bond Market Sub-Sectors
5.2. The Effects of Liquidity on Fixed-Income Portfolio Management
5.2.1. Pricing
5.2.2. Portfolio Construction
5.2.3. Alternatives to Direct Investment in Bonds
6. A Model for Fixed-Income Returns
6.1. Decomposing Expected Returns
6.1.1. Coupon Income
6.1.2. Rolldown Return
6.1.3. Views of Benchmark Yields
6.1.4. Views of Yield Spreads
6.1.5. Views of Currency Value Changes
6.2. Estimation of the Inputs
6.3. Limitations of the Expected Return Decomposition
7. Leverage
7.1. Using Leverage
7.2. Methods for Leveraging Fixed-Income Portfolios
7.2.1. Futures Contracts
7.2.2. Swap Agreements
7.2.3. Repurchase Agreements
7.2.4. Security Lending
7.3. Risks of Leverage
8. Fixed-Income Portfolio Taxation
8.1. Principles of Fixed-Income Taxation
8.2. Investment Vehicles and Taxes
Summary
References
Practice Problems
Solutions
Reading 12. Liability-Driven and Index-Based Strategies
Learning Outcomes
1. Introduction
2. Liability-Driven Investing
2.1. Liability-Driven Investing vs. Asset-Driven Liabilities
2.2. Types of Liabilities
3. Interest Rate Immunization: Managing the Interest Rate Risk of a Single Liability
3.1. A Numerical Example of Immunization
3.1.1. Portfolio Features
3.1.2. Portfolio Duration
3.1.3. Portfolio Dispersion
3.1.4. Portfolio Convexity
3.1.5. Investment Horizon and Immunization
3.1.6. A Drop in the Cash Flow Yield Scenario
3.1.7. An Increase in the Cash Flow Yield Scenario
3.1.8. Immunization and Rebalancing
3.1.9. Immunization and Shifts in the Yield Curve
3.1.10. Structural Risk in Immunization Strategy
4. Interest Rate Immunization: Managing the Interest Rate Risk of Multiple Liabilities
4.1. Cash Flow Matching
4.2. Laddered Portfolios
4.2.1. Benefits of Using Laddered Portfolios
4.2.2. Using ETFs to Build Laddered Portfolios
4.3. Duration Matching
4.3.1. Duration Matching—Parallel Shift Example
4.3.2. Duration Matching—Yield Curve Twist Scenario
4.4. Derivatives Overlay
4.5. Contingent Immunization
5. Liability-Driven Investing: An Example of a Defined Benefit Pension Plan
5.1. Model Assumptions
5.2. Model Inputs
5.3. Calculating Durations
5.4. Addressing the Duration Gap
5.4.1. Using Futures to Reduce the Duration Gap
5.4.2. Using Interest Rate Swaps to Reduce Duration Gap
5.4.3. Using Options to Reduce Duration Gap
5.4.4. Using a Swaption Collar
5.4.5. Selecting a Suitable Hedging Strategy
6. Risks in Liability-Driven Investing
6.1. Model Risk in Liability-Driven Investing
6.2. Spread Risk in Liability-Driven Investing
6.3. Counterparty Credit Risk
6.4. Asset Liquidity Risk
7. Bond Indexes and the Challenges of Matching a Fixed-Income Portfolio to an Index
7.1. Size and Breadth of the Fixed-Income Universe
7.2. Array of Characteristics
7.3. Unique Issuance and Trading Patterns
7.4. Primary Risk Factors
8. Alternative Methods for Establishing Passive Bond Market Exposure
8.1. Full Replication
8.2. Enhanced Indexing
8.2.1. Enhancement Strategies
8.3. Alternatives to Investing Directly in Fixed-Income Securities
9. Benchmark Selection
Summary
References
Practice Problems
Solutions
Glossary
A
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2022 CFA Program Level III Volume 3: Fixed Income and Equity Portfolio Management
Title Page
Table of Contents
How to Use the CFA Program Curriculum
Background on the CBOK
Organization of the Curriculum
Features of the Curriculum
End of Reading Questions/Solutions
Glossary
LOS Self-Check
Source Material
Errata
Designing Your Personal Study Program
Create a Schedule
CFA Institute Learning Ecosystem (LES)
Structured and Adaptive Study Plans
Flashcards and Game Center
Discussion Board
Practice Question Bank
Mock Exams
Prep Providers
Feedback
Portfolio Management
Study Sessions
Topic Level Learning Outcome
Study Session 6. Fixed-Income Portfolio Management (2)
Reading Assignments
Reading 13. Yield Curve Strategies
Learning Outcomes
1. Introduction
2. Key Yield Curve and Fixed-Income Concepts for Active Managers
2.1. Yield Curve Dynamics
2.2. Duration and Convexity
3. Yield Curve Strategies
3.1. Static Yield Curve
3.2. Dynamic Yield Curve
3.2.1. Divergent Rate Level View
3.2.2. Divergent Yield Curve Slope View
Rolldown Return
Δ Price Due to Benchmark Yield Changes
3.2.3. Divergent Yield Curve Shape View
3.2.4. Yield Curve Volatility Strategies
3.3. Key Rate Duration for a Portfolio
4. Active Fixed-Income Management across Currencies
5. A Framework for Evaluating Yield Curve Strategies
Summary
References
Practice Problems
Solutions
Reading 14. Fixed-Income Active Management: Credit Strategies
Learning Outcomes
1. Introduction
2. Key Credit and Spread Concepts for Active Management
2.1. Credit Risk Considerations
2.1.1. Default Probabilities and Recovery Rates
2.1.2. Default versus Credit Migration
2.1.3. Credit Spread Curves
2.2. Credit Spread Measures
2.2.1. Fixed-Rate Bond Credit Spread Measures
2.2.2. Floating-Rate Note Credit Spread Measures
2.2.3. Portfolio Return Impact of Yield Spreads
3. Credit Strategies
3.1. Bottom-Up Credit Strategies
3.1.1. Defining the Credit Universe
3.1.2. Bottom-Up Credit Analysis
3.1.3. Bottom-Up Relative Value Analysis
3.2. Top-Down Credit Strategies
3.2.1. Assessing Credit Quality in a Top-Down Approach
3.2.2. Sector Allocation in a Top-Down Approach
3.3. Factor-Based Credit Strategies
3.3.1. Key Factors Affecting Credit Spreads
3.3.2. Environmental, Social, and Governance Factors
4. Liquidity and Tail Risk
4.1. Liquidity Risk
4.2. Tail Risk
5. Synthetic Credit Strategies
6. Credit Spread Curve Strategies
6.1. Static Credit Spread Curve Strategies
6.2. Dynamic Credit Spread Curve Strategies
7. Global Credit Strategies
8. Structured Credit
9. Fixed-Income Analytics
Summary
References
Practice Problems
Solutions
Study Session 7. Equity Portfolio Management (1)
Reading Assignments
Reading 15. Overview of Equity Portfolio Management
Learning Outcomes
1. Introduction and the Role of Equities in a Portfolio
1.1. The Roles of Equities in a Portfolio
1.1.1. Capital Appreciation
1.1.2. Dividend Income
1.1.3. Diversification with Other Asset Classes
1.1.4. Hedge Against Inflation
1.1.5. Client Considerations for Equities in a Portfolio
2. Equity Investment Universe
2.1. Segmentation by Size and Style
2.2. Segmentation by Geography
2.3. Segmentation by Economic Activity
2.4. Segmentation of Equity Indexes and Benchmarks
3. Income Associated with Owning and Managing an Equity Portfolio
3.1. Dividend Income
3.2. Securities Lending Income
3.3. Ancillary Investment Strategies
4. Costs Associated with Owning and Managing an Equity Portfolio
4.1. Performance Fees
4.2. Administration Fees
4.3. Marketing and Distribution Costs
4.4. Trading Costs
4.5. Investment Approaches and Effects on Costs
5. Shareholder Engagement
5.1. Benefits of Shareholder Engagement
5.2. Disadvantages of Shareholder Engagement
5.3. The Role of an Equity Manager in Shareholder Engagement
5.3.1. Activist Investing
5.3.2. Voting
6. Equity Investment Across the Passive-Active Spectrum
6.1. Confidence to Outperform
6.2. Client Preference
6.3. Suitable Benchmark
6.4. Client-Specific Mandates
6.5. Risks/Costs of Active Management
6.6. Taxes
Summary
References
Practice Problems
Solutions
Reading 16. Passive Equity Investing
Learning Outcomes
1. Choosing a Benchmark: Indexes as a Basis for Investment
1.1. Choosing a Benchmark
1.1.1. Indexes as a Basis for Investment
1.1.2. Considerations When Choosing a Benchmark Index
2. Choosing a Benchmark: Index Construction Methodologies
3. Choosing a Benchmark: Factor-Based Strategies
4. Approaches to Passive Equity Investing: Pooled Investments
4.1. Pooled Investments
5. Approaches to Passive Equity Investing: Derivatives-Based Approaches & Index-Based Portfolios
5.1. Separately Managed Equity Index-Based Portfolios
6. Passive Portfolio Construction
6.1. Full Replication
6.2. Stratified Sampling
6.3. Optimization
6.4. Blended Approach
7. Tracking Error Management
7.1. Tracking Error and Excess Return
7.2. Potential Causes of Tracking Error and Excess Return
7.3. Controlling Tracking Error
8. Sources of Return and Risk in Passive Equity Portfolios
8.1. Attribution Analysis
8.2. Securities Lending
8.3. Investor Activism and Engagement by Passive Managers
Summary
References
Practice Problems
Solutions
Study Session 8. Equity Portfolio Management (2)
Reading Assignments
Reading 17. Active Equity Investing: Strategies
Learning Outcomes
1. Introduction
2. Approaches to Active Management
2.1. Differences in the Nature of the Information Used
2.2. Differences in the Focus of the Analysis
2.3. Difference in Orientation to the Data: Forecasting Fundamentals vs. Pattern Recognition
2.4. Differences in Portfolio Construction: Judgment vs. Optimization
3. Bottom-Up Strategies
3.1. Bottom-Up Strategies
Business Model and Branding.
Competitive Advantages.
Company Management.
3.1.1. Value-Based Approaches
3.1.1.1. Relative Value
3.1.1.2. Contrarian Investing
3.1.1.3. High-Quality Value
3.1.1.4. Income Investing
3.1.1.5. Deep-Value Investing
3.1.1.6. Restructuring and Distressed Investing
3.1.1.7. Special Situations
3.1.2. Growth-Based Approaches
4. Top-Down Strategies
4.1. Country and Geographic Allocation to Equities
4.2. Sector and Industry Rotation
4.3. Volatility-Based Strategies
4.4. Thematic Investment Strategies
5. Factor-Based Strategies: Overview
6. Factor-Based Strategies: Style Factors
6.1. Value
6.2. Price Momentum
6.3. Growth
6.4. Quality
7. Factor-Based Strategies: Unconventional Factors
8. Activist Strategies
8.1. The Popularity of Shareholder Activism
8.2. Tactics Used by Activist Investors
8.3. Typical Activist Targets
9. Other Active Strategies
9.1. Strategies Based on Statistical Arbitrage and Market Microstructure
9.2. Event-Driven Strategies
10. Creating a Fundamental Active Investment Strategy
10.1. The Fundamental Active Investment Process
10.2. Pitfalls in Fundamental Investing
10.2.1. Behavioral Bias
10.2.1.1. Confirmation Bias
10.2.1.2. Illusion of Control
10.2.1.3. Availability Bias
10.2.1.4. Loss Aversion
10.2.1.5. Overconfidence Bias
10.2.1.6. Regret Aversion Bias
10.2.2. Value and Growth Traps
10.2.2.1. The Value Trap
10.2.2.2. The Growth Trap
11. Creating a Quantitative Active Investment Strategy
11.1. Creating a Quantitative Investment Process
11.1.1. Defining the Market Opportunity (Investment Thesis)
11.1.2. Acquiring and Processing Data
11.1.3. Back-testing the Strategy
11.1.3.1. Information Coefficient
11.1.3.2. Creating a Multifactor Model
11.1.4. Evaluating the Strategy
11.1.5. Portfolio Construction Issues in Quantitative Investment
11.2. Pitfalls in Quantitative Investment Processes
11.2.1. Survivorship Bias, Look-Ahead Bias, Data Mining, and Overfitting
11.2.2. Turnover, Transaction Costs, and Short Availability
12. Equity Investment Style Classification
12.1. Different Approaches to Style Classification
12.1.1. Holdings-Based Approaches
12.1.1.1. Large-Cap, Mid-Cap, and Small-Cap Classifications
12.1.1.2. Measuring Growth, Value, and Core Characteristics
12.1.2. Returns-Based Style Analysis
12.1.3. Manager Self-Identification
12.2. Strengths and Limitations of Style Analysis
Summary
References
Practice Problems
Solutions
Reading 18. Active Equity Investing: Portfolio Construction
Learning Outcomes
1. Introduction
2. Building Blocks of Active Equity Portfolio Construction
2.1. Fundamentals of Portfolio Construction
2.2. Building Blocks Used in Portfolio Construction
2.2.1. First Building Block: Overweight or Underweight Rewarded Factors
2.2.2. Second Building Block: Alpha Skills
2.2.3. Third Building Block: Sizing Positions
2.2.4. Integrating the Building Blocks: Breadth of Expertise
3. The Implementation Process: Portfolio Construction Approaches
3.1. The Implementation Process: The Choice of Portfolio Management Approaches
3.1.1. Systematic vs. Discretionary
3.1.2. Bottom-Up vs. Top-Down
3.1.3. A Summary of the Different Approaches
4. The Implementation Process: Measures of Benchmark-Relative Risk
5. The Implementation Process: Objectives and Constraints
6. Absolute vs. Relative Measures of Risk
6.1. Absolute vs. Relative Measures of Risk
6.1.1. Causes and Sources of Absolute Risk
6.1.2. Causes and Sources of Relative/Active Risk
7. Determining the Appropriate Level of Risk
7.1. Implementation constraints
7.2. Limited diversification opportunities
7.3. Leverage and its implications for risk
8. Allocating the Risk Budget
9. Additional Risk Measures Used in Portfolio Construction and Monitoring
9.1. Heuristic Constraints
9.2. Formal Constraints
9.3. The Risks of Being Wrong
10. Implicit Cost-Related Considerations in Portfolio Construction
10.1. Implicit Costs—Market Impact and the Relevance of Position Size, Assets under Management, and Turnover
10.2. Estimating the Cost of Slippage
11. The Well-Constructed Portfolio
12. Long/Short, Long Extension, and Market-Neutral Portfolio Construction
12.1. The Merits of Long-Only Investing
12.1.1. Long-term risk premiums
12.1.2. Capacity and scalability
12.1.3. Limited legal liability
12.1.4. Regulatory
12.1.5. Transactional complexity
12.1.6. Management costs
12.1.7. Personal ideology
12.2. Long/Short Portfolio Construction
12.3. Long Extension Portfolio Construction
12.4. Market-Neutral Portfolio Construction
12.5. Benefits and Drawbacks of Long/Short Strategies
Summary
References
Practice Problems
Solutions
Glossary
A
B
C
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F
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2022 CFA Program Level III Volume 4: Alternative Investment, Portfolio Management, and Private Wealth Management
Title Page
Table of Contents
How to Use the CFA Program Curriculum
Background on the CBOK
Organization of the Curriculum
Features of the Curriculum
End of Reading Questions/Solutions
Glossary
LOS Self-Check
Source Material
Errata
Designing Your Personal Study Program
Create a Schedule
CFA Institute Learning Ecosystem (LES)
Structured and Adaptive Study Plans
Flashcards and Game Center
Discussion Board
Practice Question Bank
Mock Exams
Prep Providers
Feedback
Portfolio Management
Study Sessions
Topic Level Learning Outcome
Study Session 9. Alternative Investments for Portfolio Management
Reading Assignments
Reading 19. Hedge Fund Strategies
Learning Outcomes
1. Introduction and Classification of Hedge Fund Strategies
1.1. Classification of Hedge Funds and Strategies
2. Equity Strategies: Long/Short Equity
2.1. Long/Short Equity
2.1.1. Investment Characteristics
2.1.2. Strategy Implementation
3. Equity Strategies: Dedicated Short Selling and Short-Biased
3.1. Investment Characteristics
3.2. Strategy Implementation
4. Equity Strategies: Equity Market Neutral
4.1. Investment Characteristics
4.2. Strategy Implementation
5. Event-Driven Strategies: Merger Arbitrage
5.1. Merger Arbitrage
5.1.1. Investment Characteristics
5.1.2. Strategy Implementation
6. Event-Driven Strategies: Distressed Securities
6.1. Investment Characteristics
6.2. Strategy Implementation
7. Relative Value Strategies: Fixed Income Arbitrage
7.1. Fixed-Income Arbitrage
7.1.1. Investment Characteristics
7.1.2. Strategy Implementation
8. Relative Value Strategies: Convertible Bond Arbitrage
8.1. Investment Characteristics
8.2. Strategy Implementation
9. Opportunistic Strategies: Global Macro Strategies
9.1. Global Macro Strategies
9.1.1. Investment Characteristics
9.1.2. Strategy Implementation
10. Opportunistic Strategies: Managed Futures
10.1. Investment Characteristics
10.2. Strategy Implementation
11. Specialist Strategies
11.1. Volatility Trading
11.1.1. Investment Characteristics and Strategy Implementation
11.2. Reinsurance/Life Settlements
11.2.1. Investment Characteristics and Strategy Implementation
12. Multi-Manager Strategies
12.1. Fund-of-Funds
12.1.1. Investment Characteristics
12.1.2. Strategy Implementation
12.2. Multi-Strategy Hedge Funds
12.2.1. Investment Characteristics
12.2.2. Strategy Implementation
13. Analysis of Hedge Fund Strategies using a Conditional Factor Risk Model
13.1. Conditional Factor Risk Model
14. Evaluating Equity Hedge Fund Strategies: Application
15. Evaluating Multi-Manager Hedge Fund Strategies: Application
16. Portfolio Contribution of Hedge Fund Strategies
16.1. Performance Contribution to a 60/40 Portfolio
16.2. Risk Metrics
Summary
References
Practice Problems
Solutions
Reading 20. Asset Allocation to Alternative Investments
Learning Outcomes
1. Introduction and The Role of Alternative Investments in a Multi-Asset Portfolio
1.1. The Role of Alternative Investments in a Multi-Asset Portfolio
1.1.1. The Role of Private Equity in a Multi-Asset Portfolio
1.1.2. The Role of Hedge Funds in a Multi-Asset Portfolio
1.1.3. The Role of Real Assets in a Multi-Asset Portfolio
1.1.4. The Role of Commercial Real Estate in a Multi-Asset Portfolio
1.1.5. The Role of Private Credit in a Multi-Asset Portfolio
2. Diversifying Equity Risk
2.1. Volatility Reduction over the Short Time Horizon
2.2. Risk of Not Meeting the Investment Goals over the Long Time Horizon
3. Traditional Approaches to Asset Classification
3.1. Traditional Approaches to Asset Classification
3.1.1. A Liquidity-Based Approach to Defining the Opportunity Set
3.1.2. An Approach Based on Expected Performance under Distinct Macroeconomic Regimes
4. Risk-Based Approaches to Asset Classification and Comparing Risk-Based and Traditional Approaches
4.1. Illustration: Asset Allocation and Risk-Based Approaches
Portfolio A.
Portfolio B.
4.2. Comparing Risk-Based and Traditional Approaches
5. Risk Considerations, Return Expectations and Investment Vehicle
5.1. Risk Considerations
Short-only strategy:
Option payouts:
5.2. Return Expectations
5.3. Investment Vehicle
Direct investment in a limited partnership:
Funds of funds (FOFs):
SMAs/funds of one:
Mutual funds/UCITS/publicly traded funds:
6. Liquidity
6.1. Liquidity Risks Associated with the Investment Vehicle
Secondary markets:
Understanding a drawdown structure:
6.2. Liquidity Risks Associated with the Underlying Investments
Equity-oriented hedge funds:
Event-driven hedge funds:
Relative value hedge funds:
Leverage:
7. Fees and Expenses, Tax Considerations, and Other Considerations
7.1. Tax Considerations
7.2. Other Considerations
8. Suitability Considerations
8.1. Investment Horizon
8.2. Expertise
8.3. Governance
8.4. Transparency
9. Asset Allocation Approaches and Statistical Properties and Challenges of Asset Returns
9.1. Statistical Properties and Challenges of Asset Returns
9.1.1. Stale Pricing and Unsmoothing
9.1.2. Skewness and Fat Tails
10. Monte Carlo Simulation
10.1. Simulating Skewed and Fat-Tailed Financial Variables
10.2. Simulation for Long-Term Horizon Risk Assessment
11. Portfolio Optimization
11.1. Mean–Variance Optimization without and with Constraints
11.2. Mean–CVaR Optimization
12. Risk Factor-Based Optimization
13. Liquidity Planning and Achieving and Maintaining the Strategic Asset Allocation
13.1. Achieving and Maintaining the Strategic Asset Allocation
14. Managing the Capital Calls and Preparing for the Unexpected
14.1. Preparing for the Unexpected
15. Monitoring the Investment Program
15.1. Overall Investment Program Monitoring
15.2. Performance Evaluation
15.3. Monitoring the Firm and the Investment Process
Summary
References
Practice Problems
Solutions
Study Session 10. Private Wealth Management (1)
Reading Assignments
Reading 21. Overview of Private Wealth Management
Learning Outcomes
1. Introduction and Private Clients Versus Institutional Clients
1.1. Private Clients versus Institutional Clients
1.1.1. Investment Objectives
1.1.2. Constraints
1.1.2.1. Time horizon
1.1.2.2. Scale
1.1.2.3. Taxes
1.1.3. Other Distinctions
1.1.3.1. Investment Governance
1.1.3.2. Investment Sophistication
1.1.3.3. Regulation
1.1.3.4. Uniqueness and Complexity
2. Understanding Private Clients: Information Needed in Advising Private Clients
2.1. Information Needed in Advising Private Clients
2.1.1. Personal Information
2.1.2. Financial Information
2.1.3. Private Client Tax Considerations
2.1.3.1. Common Tax Categories
2.1.3.2. Basic Tax Strategies
2.1.4. Other Relevant Information
3. Client Goals
3.1. Planned Goals
3.2. Unplanned Goals
3.3. The Wealth Manager’s Role
4. Private Client Risk Tolerance
4.1. Risk Tolerance Questionnaire
4.2. Risk Tolerance Conversation
4.3. Risk Tolerance with Multiple Goals
5. Technical and Soft Skills for Wealth Managers
5.1. Technical Skills
5.2. Soft Skills
6. Investment Planning, and Capital Sufficiency Analysis
6.1. Capital Sufficiency Analysis
6.1.1. Methods for Evaluating Capital Sufficiency
6.1.2. Inputs to Capital Sufficiency Analysis
6.1.3. Interpreting Monte Carlo Simulation Results
7. Retirement Planning
7.1. Retirement Stage of Life
7.1.2. Analyzing Retirement Goals
7.1.2.1. Mortality Tables
7.1.2.2. Annuities
7.1.2.3. Monte Carlo Simulation Revisited
7.1.3. Behavioral Considerations in Retirement Planning
8. Investment Policy Statement
8.1. Parts of the Investment Policy Statement
8.1.1. Background and Investment Objectives
8.1.2. Investment Parameters
8.1.2.1. Risk Tolerance
8.1.2.2. Investment Time Horizon
8.1.2.3. Asset Class Preferences
8.1.2.4. Other Investment Preferences
8.1.2.5. Liquidity Preferences
8.1.2.6. Constraints
8.1.3. Portfolio Asset Allocation
8.1.4. Portfolio Management
8.1.4.1. Discretionary Authority
8.1.4.2. Rebalancing
8.1.4.3. Tactical Changes
8.1.4.4. Implementation
8.1.5. Duties and Responsibilities
8.1.5.1. Wealth Manager Responsibilities
8.1.5.2. IPS Review
8.1.6. IPS Appendix
8.1.6.1. Modeled Portfolio Behavior
8.1.6.2. Capital Market Expectations
9. Sample Investment Policy Statement
10. Portfolio Construction and Allocation and Investments for Private Wealth Clients
10.1. Portfolio Allocation and Investments for Private Wealth Clients
10.1.1. Portfolio Construction—Traditional Approach
10.1.2. Portfolio Construction—Goals-Based Investing Approach
11. Portfolio Reporting and Review
11.1. Portfolio Reporting
11.2. Portfolio Review
12. Evaluating The Success of an Investment Program
12.1. Goal Achievement
12.2. Process Consistency
12.3. Portfolio Performance
12.4. Definitions of Success
13. Ethical and Compliance Considerations in Private Wealth Management
13.1. Ethical Considerations
13.1.1. Fiduciary Duty and Suitability
13.1.2. Know Your Customer (KYC)
13.1.3. Confidentiality
13.1.4. Conflicts of Interest
13.2. Compliance Considerations
14. Private Client Segments
14.1. Mass Affluent Segment
14.2. High-Net-Worth Segment
14.3. Ultra-High-Net-Worth Segment
14.4. Robo-Advisors
Summary
References
Practice Problems
Solutions
Reading 22. Topics in Private Wealth Management
Learning Outcomes
1. Introduction
2. General Principles of Taxation: Components of Return and Tax Status of the Account
2.1. Taxation of the Components of Return
2.1.1. Interest, Dividends, and Withholding Taxes
2.1.2. Capital Gains Taxes
2.1.3. Real Estate Taxes
2.2. The Tax Status of the Account
3. The Jurisdiction that Applies to the Investor
4. Measuring Tax Efficiency with After-Tax Returns
4.1. Tax Efficiency of Various Asset Classes and Investment Strategies
4.2. Calculating After-Tax Returns
4.2.1. After-Tax Holding Period Returns
4.2.2. After-Tax Post-Liquidation Returns
4.2.3. After-Tax Excess Returns
4.2.4. Tax-Efficiency Ratio
5. Taxable, Tax-Exempt, and Tax-Deferred Accounts: Capital Accumulation and Asset Location
5.1. Capital Accumulation in Taxable, Tax-Deferred, and Tax-Exempt Accounts
5.2. Asset Location
6. Taxable, Tax-Exempt, and Tax-Deferred Accounts: Decumulation Strategies and Charitable Giving Strategies
6.1. Tax Considerations in Charitable Giving
7. Tax Management Strategies and Basic Tax Strategies
7.1. Basic Portfolio Tax Management Strategies
8. Application of Tax Management Strategies
8.1. Investment Vehicles
8.2. Tax Loss Harvesting
8.3. Quantitative Tax Management
9. Managing Concentrated Portfolios and Risk and Tax Considerations in Managing Concentrated Single-Asset Positions
9.1. Risk and Tax Considerations in Managing Concentrated Single-Asset Positions
9.1.1. Approaches to Managing the Risk of Concentrated Positions
10. Strategies for Managing Concentrated Positions in Public Equities
10.1. Staged Diversification and Completion Portfolios
Let’s explore how this might work using Michael Stark’s situation.
10.2. Tax-Optimized Equity Strategies—Equity Monetization, Collars, and Call Writing
10.3. Tax-Free Exchanges
10.4. Charitable Remainder Trust
11. Strategies for Managing Concentrated Positions in Privately Owned Businesses and Strategies for Managing Concentrated Positions in Real Estate
11.1. Personal Line of Credit Secured by Company Shares
11.2. Leveraged Recapitalization
11.3. Employee Stock Ownership Plan
11.4. Strategies for Managing Concentrated Positions in Real Estate
11.5. Mortgage Financing
11.6. Real Estate Monetization for the Charitably Inclined—An Asset Location Strategy
12. Directing and Transferring Wealth and Objectives of Gift and Estate Planning
12.1. Objectives of Gift and Estate Planning
13. Gift and Estate Planning Strategies, Introduction to Estate Planning: Wills, Probate and Legal Systems, and Lifetime Gifts and Testamentary Bequests
13.1. Introduction to Estate Planning: Wills, Probate, and Legal Systems
13.2. Lifetime Gifts and Testamentary Bequests
13.3. Efficiency of Lifetime Gifts versus Testamentary Bequests
14. Estate Planning Tools: Trusts, Foundations, Life Insurance, Companies
15. Managing Wealth Across Generations, General Principles of Family Governance, Family Conflict Resolution, and Family Dynamics in the Context of Business Exit
15.1. General Principles of Family Governance
15.2. Family Conflict Resolution
15.3. Family Dynamics in the Context of Business Exit
16. Planning for the Unexpected
16.1. Divorce
16.2. Incapacity
Summary
References
Practice Problems
Solutions
Study Session 11. Private Wealth Management (2)
Reading Assignments
Reading 23. Risk Management for Individuals
Learning Outcomes
1. Introduction
2. Human Capital, Financial Capital, and Economic Net Worth
2.1. Human Capital
2.2. Financial Capital
2.2.1. Personal Assets
2.2.2. Investment Assets
2.2.3. Publicly Traded Marketable Assets
2.2.4. Non-Publicly Traded Marketable Assets
2.2.4.1. Real Estate
2.2.4.2. Annuities
2.2.4.3. Cash-Value Life Insurance
2.2.4.4. Business Assets
2.2.4.5. Collectibles
2.2.5. Non-Marketable Assets
2.2.5.1. Employer Pension Plans (Vested)
2.2.5.2. Government Pensions
2.2.6. Account Type
2.3. Economic Net Worth
3. A Framework for Individual Risk Management
3.1. The Risk Management Strategy for Individuals
3.1.1. Specify the Objective
3.1.2. Identify Risks
3.1.3. Evaluate Risks and Select Appropriate Methods to Manage the Risks
3.1.4. Monitor Outcomes and Risk Exposures and Make Appropriate Adjustments in Methods
3.2. Financial Stages of Life
3.2.1. Education Phase
3.2.2. Early Career
3.2.3. Career Development
3.2.4. Peak Accumulation
3.2.5. Pre-retirement
3.2.6. Early Retirement
3.2.7. Late Retirement
4. The Individual Balance Sheet
4.1. Traditional Balance Sheet
4.2. Economic (Holistic) Balance Sheet
4.3. Changes in Economic Net Worth
5. Individual Risk Exposures
5.1. Earnings Risk
5.2. Premature Death Risk
5.3. Longevity Risk
5.4. Property Risk
5.5. Liability Risk
5.6. Health Risk
6. Life Insurance: Uses, Types and Elements
6.1. Life Insurance
6.1.1. Uses of Life Insurance
6.1.2. Types of Life Insurance
6.1.3. Basic Elements of a Life Insurance Policy
7. Life Insurance - Pricing, Policy Cost Comparison and Determining Amount Needed
7.1. Mortality Expectations
7.2. Calculation of the Net Premium and Gross Premium
7.3. Cash Values and Policy Reserves
7.4. Consumer Comparisons of Life Insurance Costs
7.5. How Much Life Insurance Does One Need?
8. Other Types of Insurance
8.1. Property Insurance
8.1.1. Homeowner’s Insurance
8.1.2. Automobile Insurance
8.2. Health/Medical Insurance
8.3. Liability Insurance
8.4. Other Types of Insurance
9. Annuities: Types, Structure and Classification
9.1. Parties to an Annuity Contract
9.2. Classification of Annuities
9.2.1. Deferred Variable Annuities
9.2.2. Deferred Fixed Annuities
9.2.3. Immediate Variable Annuities
9.2.4. Immediate Fixed Annuities
9.2.5. Advanced Life Deferred Annuities
10. Annuities: Advantages and Disadvantages of Fixed and Variable Annuities
10.1. Volatility of Benefit Amount
10.2. Flexibility
10.3. Future Market Expectations
10.4. Fees
10.5. Inflation Concerns
10.6. Payout Methods
10.7. Annuity Benefit Taxation
10.8. Appropriateness of Annuities
11. Risk Management Implementation: Determining the Optimal Strategy and Case Analysis
11.1. Determining the Optimal Risk Management Strategy
11.2. Analyzing an Insurance Program
11.2.1. Current Insurance Plan
Life Insurance.
Health Insurance.
Disability Insurance.
Long-Term Care Insurance.
Property Insurance.
11.2.2. Program Review
Life Insurance.
11.2.3. Recommendations
Health Insurance.
Disability Insurance.
Long-Term Care Insurance.
Property Insurance.
Longevity Insurance.
12. The Effect of Human Capital on Asset Allocation and Risk Reduction
12.1. Asset Allocation and Risk Reduction
Summary
References
Practice Problems
Solutions
Glossary
A
B
C
D
E
F
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2022 CFA Program Level III Volume 5: Institutional Investors, Other Topics in Portfolio Management, and Cases
Title Page
Table of Contents
How to Use the CFA Program Curriculum
Background on the CBOK
Organization of the Curriculum
Features of the Curriculum
End of Reading Questions/Solutions
Glossary
LOS Self-Check
Source Material
Errata
Designing Your Personal Study Program
Create a Schedule
CFA Institute Learning Ecosystem (LES)
Structured and Adaptive Study Plans
Flashcards and Game Center
Discussion Board
Practice Question Bank
Mock Exams
Prep Providers
Feedback
Portfolio Management
Study Sessions
Topic Level Learning Outcome
Study Session 12. Portfolio Management for Institutional Investors
Reading Assignment
Reading 24. Portfolio Management for Institutional Investors
Learning Outcomes
1. Institutional Investors: Types and Common Characteristics
1.1. Institutional Investors: Common Characteristics
1.1.1. Scale
1.1.2. Long-Term Investment Horizon
1.1.3. Regulatory Frameworks
1.1.4. Governance Framework
1.1.5. Principal–Agent Issues
2. Overview of Investment Policy
3. Pension Funds: Types and Stakeholders
3.1. Stakeholders
3.1.1. Defined Benefit Pension Plans
3.1.2. Defined Contribution Pension Plans
4. Pension Funds: Liabilities, Investment Horizon, and Liquidity Needs
4.1. Liabilities and Investment Horizon
4.1.1. Defined Benefit Pension Plans
4.1.2. Defined Contribution Pension Plans
4.2. Liquidity Needs
5. Pension Funds: External Constraints
5.1. Legal and Regulatory Constraints
5.2. Tax and Accounting Constraints
6. Pension Funds: Risk Considerations
7. Pension Funds: Investment Objectives and Asset Allocation
7.1. Investment Objectives
7.1.1. Defined Benefit Pension Plans
7.1.2. Defined Contribution Pension Plans
7.2. Asset Allocation by Pension Plans
8. Sovereign Wealth Funds: Types and Stakeholders
8.1. Stakeholders
9. Sovereign Wealth Funds: Liabilities, Investment Horizon, Liquidity Needs, and External Constraints
9.1. Liabilities and Investment Horizons
9.1.1. Budget Stabilization Funds
9.1.2. Development Funds
9.1.3. Savings Funds
9.1.4. Reserve Funds
9.1.5. Pension Reserve Funds
9.2. Liquidity Needs
9.2.1. Budget Stabilization Funds
9.2.2. Development Funds
9.2.3. Savings Funds
9.2.4. Reserve Funds
9.2.5. Pension Reserve Funds
9.3. External Constraints Affecting Investment
9.3.1. Legal and Regulatory Constraints
9.3.2. Tax and Accounting Constraints
10. Sovereign Wealth Funds: Investment Objectives and Asset Allocation
10.1. Investment Objectives
10.1.1. Budget Stabilization Funds
10.1.2. Development Funds
10.1.3. Savings Funds
10.1.4. Reserve Funds
10.1.5. Pension Reserve Funds
10.2. Asset Allocation by Sovereign Wealth Funds
11. University Endowments and Private Foundations: Introduction and External Constraints
University Endowments
Private Foundations
11.1. External Constraints Affecting Investment
11.1.1. Legal and Regulatory Constraints
11.1.2. Tax and Accounting Constraints
12. University Endowments: Stakeholders, Liabilities, Investment Horizon, and Liquidity Needs
12.1. University Endowments—Liabilities and Investment Horizon
12.2. University Endowments—Liquidity Needs
13. Private Foundations: Types, Stakeholders, Liabilities, Investment Horizon, and Liquidity Needs
13.1. Private Foundations—Liabilities and Investment Horizon
13.2. Private Foundations—Liquidity Needs
14. University Endowments: Investment Objectives and Asset Allocation
14.1. University Endowments
14.2. Asset Allocation
14.2.1. University Endowments
15. Private Foundations: Investment Objectives and Asset Allocation
15.1. Private Foundations
16. Banks and Insurers: Introduction and External Constraints
Banks
Insurers
16.1. External Constraints Affecting Investment
16.1.1. Legal and Regulatory Constraints
16.1.2. Accounting and Tax Considerations
17. Banks: Stakeholders, Liabilities, Investment Horizon, and Liquidity Needs
17.1. Banks—Liabilities and Investment Horizon
17.2. Banks—Liquidity Needs
18. Insurers: Stakeholders, Liabilities, Investment Horizon, and Liquidity Needs
18.1. Insurers—Liabilities and Investment Horizon
18.1.1. Life Insurers
18.1.2. Property & Casualty Insurers
18.2. Insurers—Liquidity Needs
19. Banks and Insurers: Investment Objectives
19.1. Banks
19.2. Insurers
20. Banks and Insurers: Balance Sheet Management and Investment Considerations
21. Banks and Insurers: Investment Strategies and Effects on Asset and Liability Volatility
22. Banks and Insurers: Implementation of Portfolio Decisions
Summary
References
Practice Problems
Solutions
Study Session 13. Trading, Performance Evaluation, and Manager Selection
Reading Assignments
Reading 25. Trade Strategy and Execution
Learning Outcomes
1. Introduction
2. Motivations to Trade
2.1. Profit Seeking
2.1.1. Michigan Index of Consumer Sentiment (short-term profit seeking)
2.1.2. Value manager (long-term profit seeking)
2.2. Risk Management/Hedging Needs
2.3. Cash Flow Needs
2.4. Corporate Actions/Index Reconstitutions/Margin Calls
3. Trading Strategies and Strategy Selection
3.1. Trade Strategy Inputs
3.1.1. Order Characteristics
3.1.2. Security Characteristics
3.1.3. Market Conditions
3.1.4. User-Based Considerations: Trading Cost Risk Aversion
3.1.5. Market Impact and Execution Risk
Trader’s dilemma.
4. Reference Prices
4.1. Pre-Trade Benchmarks
4.1.1. Decision price
4.1.2. Previous close
4.1.3. Opening price
4.1.4. Arrival price
4.2. Intraday Benchmarks
4.2.1. VWAP
4.2.2. TWAP
4.3. Post-Trade Benchmarks
4.3.1. Closing price
4.4. Price Target Benchmarks
5. Trading Strategies
5.1. Short-Term Alpha Trade
5.2. Long-Term Alpha Trade
5.3. Risk Rebalance Trade
5.4. Client Redemption Trade
5.5. New Mandate Trade
6. Trade Execution
6.1. Trade Implementation Choices
6.2. Algorithmic Trading
6.2.1. Execution algorithms
6.2.2. Profit-seeking algorithms
6.2.3. Execution Algorithm Classifications
6.2.3.1. Scheduled (POV, VWAP, TWAP)
6.2.3.2. Liquidity seeking
6.2.3.3. Arrival price
6.2.3.4. Dark strategies/liquidity aggregators
6.2.3.5. Smart order routers
Market orders.
Limit orders.
7. Comparison of Markets
7.1. Equities
7.2. Fixed Income
7.3. Exchange-Traded Derivatives
7.4. Over-the-Counter Derivatives
7.5. Spot Foreign Exchange (Currency)
8. Trade Cost Measurement
8.1. Implementation Shortfall
8.2. Expanded Implementation Shortfall
Improving Execution Performance
Delay Cost
Scenario 1:
Scenario 2:
Opportunity Cost
Scenario 1:
Scenario 2:
9. Evaluating Trade Execution
9.1. Arrival Price
9.2. VWAP
9.3. TWAP
9.4. Market on Close
9.5. Market-Adjusted Cost
Buying in a Rising Market
9.6. Added Value
10. Trade Governance
10.1. Meaning of Best Order Execution within the Relevant Regulatory Framework
10.2. Factors Used to Determine the Optimal Order Execution Approach
10.3. List of Eligible Brokers and Execution Venues
10.4. Process Used to Monitor Execution Arrangements
Summary
Practice Problems
Solutions
Reading 26. Portfolio Performance Evaluation
Learning Outcomes
1. Introduction
2. Introduction to Performance Evaluation and Attribution
2.1. Performance Attribution
3. Equity Return Attribution
3.1. A Simple Return Attribution Example
3.2. Equity Return Attribution—The Brinson–Hood–Beebower Model
3.3. Brinson–Fachler Model
4. Fixed- Income Return Attribution
4.1. Fixed-Income Return Attribution
4.1.1. Exposure Decomposition—Duration Based
4.1.2. Yield Curve Decomposition—Duration Based
4.1.3. Yield Curve Decomposition—Full Repricing
4.1.4. Fixed-Income Attribution—Worked Example
5. Risk Attribution
6. Return Attribution Analysis at Multiple Levels
6.1. Macro Attribution—An Example
6.2. Micro Attribution—An Example
7. Asset-Based and Liability-Based Benchmarks
7.1. Asset-Based Benchmarks
8. Benchmark Properties, Evaluating Benchmark Quality, and Choosing the Correct Benchmark
8.1. Evaluating Benchmark Quality: Analysis Based on a Decomposition of Portfolio Holdings and Returns
8.2. Importance of Choosing the Correct Benchmark
9. Benchmarking Alternative Investments
9.1. Benchmarking Hedge Fund Investments
9.2. Benchmarking Real Estate Investments
9.3. Benchmarking Private Equity
9.4. Benchmarking Commodity Investments
9.5. Benchmarking Managed Derivatives
9.6. Benchmarking Distressed Securities
10. Performance Appraisal: Risk-Based Measures
10.1. Distinguishing Investment Skill from Luck
10.2. Appraisal Measures
10.2.1. The Sharpe Ratio
10.2.2. The Treynor Ratio
10.2.3. The Information Ratio
10.2.4. The Appraisal Ratio
10.2.5. The Sortino Ratio
11. Performance Appraisal: Capture Ratios and Drawdowns
11.1. Capture Ratios
11.2. Drawdown
12. Evaluation of Investment Manager Skill
12.1. Performance Attribution Analysis
12.2. Appraisal Measures
12.3. Sample Evaluation of Skill
Summary
References
Practice Problems
Solutions
Reading 27. Investment Manager Selection
Learning Outcomes
1. Introduction
2. A Framework for Investment Manager Search and Selection
2.1. Defining the Manager Universe
3. Type I and Type II Errors in Manager Selection
3.1. Qualitative considerations in Type I and Type II errors
3.2. Performance implications of Type I and Type II errors
4. Quantitative Elements of Manager Search and Selection
4.1. Style Analysis
5. Capture Ratios and Drawdowns in Manager Evaluation
6. The Manager's Investment Philosophy
6.1. Investment Philosophy
6.2. Investment Personnel
7. The Manager's Investment Decision-making Process
7.1. Signal Creation (Idea Generation)
7.2. Signal Capture (Idea Implementation)
7.3. Portfolio Construction
7.4. Monitoring the Portfolio
8. Operational Due Diligence
8.1. Firm
8.2. Investment Vehicle
8.3. Evaluation of the Investment’s Terms
8.3.1. Liquidity
9. Management Fees
9.1. Assets under Management Fees
9.2. Performance-Based Fees
Summary
References
Practice Problems
Solutions
Study Session 14. Cases in Portfolio Management and Risk Management
Reading Assignments
Reading 28. Case Study in Portfolio Management: Institutional
Learning Outcomes
1. Introduction
2. Background: Liquidity Management
2.1. Liquidity Profiling and Time-to-Cash
2.2. Rebalancing, Commitments
2.3. Stress Testing
2.4. Derivatives
2.5. Earning an Illiquidity Premium
3. QUINCO Case: Background
3.1. Quadrivium University Investment Company (QUINCO)
3.2. Investment Strategy: Background and Evolution
3.2.1. Current Scenario
4. QUINCO Case: Strategic Asset Allocation
5. QUINCO Case: Liquidity Management
6. QUINCO Case: Asset Manager Selection
7. QUINCO Case: Tactical Asset Allocation
8. QUINCO Case: Asset Allocation Rebalancing
9. QUINCO Case: ESG Integration
Student Activity
QUINCO ESG Approach
QUINCO
Investment Response
Summary
References
Practice Problems
Solutions
Reading 29. Case Study in Risk Management: Private Wealth
Learning Outcomes
1. Introduction and Case Background
1.1. Background of Eurolandia
1.1.1. Government Pension Plan
1.1.2. Health System
1.1.3. Unemployment Insurance
1.1.4. Disability Insurance
1.1.5. Education
1.1.6. Social Security Contributions and Tax Rates
1.2. The Schmitt Family in Their Early Career Stage
1.2.1. Initial Case Facts
2. Identification and Analysis of Risk Exposures: Early Career Stage
2.1. Specify the Schmitts’ financial objectives
2.2. Identification of risk exposures
2.3. Analysis of identified risk
2.3.1. Earnings risk
2.3.2. Premature death risk
2.3.3. Car accident and repair costs
2.3.4. Liability risk
2.3.5. House purchase
3. Risk Management Recommendations: Early Career Stage
3.1. Recommendations for managing risks
3.1.1. Earnings risk
3.1.2. Premature death risk
3.1.3. Car accident and repair costs
3.1.4. Risks to lifestyle arising from the proposed house purchase
3.1.5. Other risks
3.2. Monitoring outcomes and risk exposures
4. Risk Management Considerations associated with Home Purchase
4.1. Review of risk Management Arrangements Following the House Purchase
5. Identification and Analysis of Risk Exposures: Career Development Stage
5.1. Case Facts: The Schmitts Are 45
5.2. Financial Objectives in the Career Development Stage
5.3. Identification and Evaluation of Risks in the Career Development Stage
5.3.1. Assessment of earnings risk
5.3.2. Analysis of the investment portfolio risks
5.3.3. Analysis of the retirement savings plans
5.3.4. Other risks
6. Risk Management Recommendations: Career Development Stage
6.1. Disability insurance
6.2. Life insurance
6.3. Investment risk recommendations
6.4. Retirement planning recommendation
6.5. Additional suggestions
7. Identification and Analysis of Risk Exposures: Peak Accumulation Stage
7.1. Review of Objectives, Risks, and Methods of Addressing Them
7.1.1. Financial objectives
7.1.2. Review of Risks and Related Risk Management Methods
8. Assessment of and Recommendations concerning Risk to Retirement Lifestyle and Bequest Goals: Peak Accumulation Stage
8.1. Analysis of Investment Portfolio
8.1.1. The goal of supporting Peter
8.1.2. Leaving inheritance to Roxane
8.2. Analysis of Asset Allocation
8.2.1. Peter’s care
8.2.2. Leaving an inheritance for Roxane
8.3. Recommendations for Risk Management at Peak Accumulation Stage
8.3.1. Risk to earnings
8.3.2. Recommendations for retirement savings
8.3.3. Recommendations for the investment portfolio
9. Identification and Analysis of Retirement Objectives, Assets and Drawdown Plan: Retirement Stage
9.1. Key Issues and Objectives
9.2. Analysis of Retirement Assets and Drawdown Plan
10. Income and Investment Portfolio Recommendations: Retirement Stage
10.1. Investment Portfolio Analysis and Recommendations
10.2. The Advisor’s Recommendations for Investment Portfolio in Retirement
Summary
Practice Problems
Solutions
Reading 30. Integrated Cases in Risk Management: Institutional
Learning Outcomes
1. Introduction
2. Financial Risks Faced by Institutional Investors
2.1. Long-Term Perspective
2.2. Dimensions of Financial Risk Management
2.2.1. Top-down vs. bottom-up risk analysis
2.2.2. Portfolio-level risk vs. asset-class-specific risk
2.2.3. Return-based vs. holdings-based risk approaches
2.2.4. Absolute vs. relative risk
2.2.5. Long-term vs. short-term risk metrics
2.2.6. Quantitative vs. qualitative risks
2.2.7. Pre- and post-investment risk assessment
2.3. Risk Considerations for Long-Term Investors
2.4. Risks Associated with Illiquid Asset Classes
2.4.1. Cash flow modeling
2.4.2. Addressing return smoothing behavior of illiquid asset classes
2.4.3. Direct vs. fund investments in illiquid asset classes
2.5. Managing Liquidity Risk
2.6. Enterprise Risk Management for Institutional Investors
3. Environmental and Social Risks Faced by Institutional Investors
3.1. Universal Ownership, Externalities, and Responsible Investing
3.2. Material Environmental Issues for an Institutional Investor
3.2.1. Physical climate risks
3.2.2. Impact on real assets
3.2.3. Climate transition risks
3.2.4. Climate opportunities
Climate mitigation
Climate adaptation
3.3. Material Social Issues for an Institutional Investor
3.3.1. Managing community relations and the social license to operate
3.3.2. Labor issues in the supply chain
3.3.3. The “just” transition
Case Study
1. Case Study: Introduction
2. Case Study: Background
3. R-SWF’S Investments: 1.0
Initial Case Facts (1.0)
Investment Committee Meeting 1.0
Participants
Chief Investment Officer:
Infrastructure Investment Discussion
Head of Infrastructure:
Chief Investment Officer:
Head of Infrastructure:
Chief Investment Officer:
Private Equity Investment Discussion
Head of PE:
Chief Investment Officer:
Head of PE:
Chief Investment Officer:
Head of Risk:
Head of PE:
Chief Investment Officer:
Head of Risk:
Head of PE:
Chief Investment Officer:
Head of Equities:
Head of PE:
Chief Investment Officer:
Head of Risk:
Chief Investment Officer:
Head of Equities:
Head of PE:
Chief Investment Officer:
Head of PE:
Head of Equities:
Chief Investment Officer:
Head of Risk:
Head of PE:
Head of Equities:
Chief Investment Officer:
Head of PE:
General Discussion on Risk
Chief Investment Officer:
Head of Risk:
Head of PE:
Head of Infrastructure:
Head of Risk:
Head of Infrastructure:
Head of Risk:
Head of Infrastructure:
Head of Risk:
Head of Equities:
Head of Infrastructure
Head of Risk:
Head of Infrastructure:
Chief Investment Officer:
Head of Infrastructure:
Head of PE:
Head of Risk:
Head of PE:
Head of Infrastructure:
Chief Investment Officer:
Head of Risk:
Head of Infrastructure:
Head of PE:
Head of Equities:
Head of Infrastructure:
Head of PE:
Chief Investment Officer
Head of Risk:
Head of Equities:
Head of Risk:
Head of Infrastructure:
Voting on Infrastructure Investment
Chief Investment Officer:
Head of Infrastructure:
Chief Investment Officer:
Head of Risk:
Chief Investment Officer:
Head of PE:
Chief Investment Officer:
Head of Equities:
Chief Investment Officer:
Voting on Private Equity Investment
Chief Investment Officer:
Head of PE:
Chief Investment Officer:
Head of Equities:
Chief Investment Officer:
Head of Infrastructure:
Chief Investment Officer:
Head of Risk:
Chief Investment Officer:
Head of PE:
Head of Risk:
Head of PE:
Chief Investment Officer:
—The End—
4. R-SWF’S Investments: 2.0
Extension of Case Facts (2.0)
Investment Committee Meeting 2.0
Participants
Chief Investment Officer:
Head of Infrastructure:
Chief Investment Officer:
Head of PE:
Chief Investment Officer:
Head of PE:
Head of Risk:
Head of PE:
Head of Risk:
Head of PE:
Chief Investment Officer:
Head of PE:
Head of Risk:
Chief Investment Officer:
Head of PE:
Chief Investment Officer:
Head of Risk:
Head of Infrastructure:
Head of Equities:
Head of Infrastructure:
Chief Investment Officer:
Head of PE:
Head of Infrastructure:
Chief Investment Officer:
Head of Risk:
Chief Investment Officer:
Head of Risk:
Head of Infrastructure:
Head of Risk:
Head of PE:
Head of Equities:
Head of PE:
Chief Investment Officer:
Head of Equities:
Chief Investment Officer:
Head of Infrastructure:
Chief Investment Officer:
Head of Risk:
Chief Investment Officer:
Head of Equities:
Chief Investment Officer:
—The End—
5. R-SWF’S Investments: 3.0
Second Extension of Case Facts (3.0)
Update on Infrastructure Investment
Update on PE Investment
References
Glossary
A
B
C
D
E
F
G
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I
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2022 CFA Program Level III Volume 6: Ethical and Professional Standards
Title Page
Table of Contents
How to Use the CFA Program Curriculum
Background on the CBOK
Organization of the Curriculum
Features of the Curriculum
End of Reading Questions/Solutions
Glossary
LOS Self-Check
Source Material
Errata
Designing Your Personal Study Program
Create a Schedule
CFA Institute Learning Ecosystem (LES)
Structured and Adaptive Study Plans
Flashcards and Game Center
Discussion Board
Practice Question Bank
Mock Exams
Prep Providers
Feedback
Ethical and Professional Standards
Study Sessions
Topic Level Learning Outcome
Study Session 15. Ethical and Professional Standards (1)
Reading Assignments
Reading 31. Code of Ethics and Standards of Professional Conduct
Learning Outcomes
Preface
Evolution of the CFA Institute Code of Ethics and Standards of Professional Conduct
Standards of Practice Handbook
Summary of Changes in the Eleventh Edition
Inclusion of Updated CFA Institute Mission
Updated Code of Ethics Principle
New Standard Regarding Responsibilities of Supervisors [IV(C)]
Additional Requirement under the Standard for Communication with Clients and Prospective Clients [V(B)]
Modification to Standard VII(A)
General Guidance and Example Revision
CFA Institute Professional Conduct Program
Adoption of the Code and Standards
Acknowledgments
Ethics and the Investment Industry
Why Ethics Matters
Ethics, Society, and the Capital Markets
Capital Market Sustainability and the Actions of One
The Relationship between Ethics and Regulations
Applying an Ethical Framework
Commitment to Ethics by Firms
Ethical Commitment of CFA Institute
CFA Institute Code of Ethics and Standards of Professional Conduct
Preamble
The Code of Ethics
Standards of Professional Conduct
Reading 32. Guidance for Standards I–VII
Learning Outcomes
Standard I(A): Professionalism - Knowledge of the Law
Standard I(A) Knowledge of the Law
Guidance
Relationship between the Code and Standards and Applicable Law
Participation in or Association with Violations by Others
Investment Products and Applicable Laws
Standard I(A): Recommended Procedures
Members and Candidates
Distribution Area Laws
Legal Counsel
Dissociation
Firms
Standard I(A): Application of the Standard
Example 1 (Notification of Known Violations):
Example 2 (Dissociating from a Violation):
Example 3 (Dissociating from a Violation):
Example 4 (Following the Highest Requirements):
Example 5 (Following the Highest Requirements):
Example 6 (Laws and Regulations Based on Religious Tenets):
Example 7 (Reporting Potential Unethical Actions):
Example 8 (Failure to Maintain Knowledge of the Law):
Standard I(B): Professionalism - Independence and Objectivity
Guidance
Buy-Side Clients
Fund Manager and Custodial Relationships
Investment Banking Relationships
Performance Measurement and Attribution
Public Companies
Credit Rating Agency Opinions
Influence during the Manager Selection/Procurement Process
Issuer-Paid Research
Travel Funding
Standard I(B): Recommended Procedures
Standard I(B): Application of the Standard
Example 1 (Travel Expenses):
Example 2 (Research Independence):
Example 3 (Research Independence and Intrafirm Pressure):
Example 4 (Research Independence and Issuer Relationship Pressure):
Example 5 (Research Independence and Sales Pressure):
Example 6 (Research Independence and Prior Coverage):
Example 7 (Gifts and Entertainment from Related Party):
Example 8 (Gifts and Entertainment from Client):
Example 9 (Travel Expenses from External Manager):
Example 10 (Research Independence and Compensation Arrangements):
Example 11 (Recommendation Objectivity and Service Fees):
Example 12 (Recommendation Objectivity):
Example 13 (Influencing Manager Selection Decisions):
Example 14 (Influencing Manager Selection Decisions):
Example 15 (Fund Manager Relationships):
Example 16 (Intrafirm Pressure):
Standard I(C): Professionalism – Misrepresentation
Guidance
Impact on Investment Practice
Performance Reporting
Social Media
Omissions
Plagiarism
Work Completed for Employer
Standard I(C): Recommended Procedures
Factual Presentations
Qualification Summary
Verify Outside Information
Maintain Webpages
Plagiarism Policy
Standard I(C): Application of the Standard
Example 1 (Disclosure of Issuer-Paid Research):
Example 2 (Correction of Unintentional Errors):
Example 3 (Noncorrection of Known Errors):
Example 4 (Plagiarism):
Example 5 (Misrepresentation of Information):
Example 6 (Potential Information Misrepresentation):
Example 7 (Plagiarism):
Example 8 (Plagiarism):
Example 9 (Plagiarism):
Example 10 (Plagiarism):
Example 11 (Misrepresentation of Information):
Example 12 (Misrepresentation of Information):
Example 13 (Avoiding a Misrepresentation):
Example 14 (Misrepresenting Composite Construction):
Example 15 (Presenting Out-of-Date Information):
Example 16 (Overemphasis of Firm Results):
Standard I(D): Professionalism – Misconduct
Guidance
Standard I(D): Recommended Procedures
Standard I(D): Application of the Standard
Example 1 (Professionalism and Competence):
Example 2 (Fraud and Deceit):
Example 3 (Fraud and Deceit):
Example 4 (Personal Actions and Integrity):
Example 5 (Professional Misconduct):
Standard II(A): Integrity of Capital Markets - Material Nonpublic Information
Standard II(A) Material Nonpublic Information
Guidance
What Is “Material” Information?
What Constitutes “Nonpublic” Information?
Mosaic Theory
Social Media
Using Industry Experts
Investment Research Reports
Standard II(A): Recommended Procedures
Achieve Public Dissemination
Adopt Compliance Procedures
Adopt Disclosure Procedures
Issue Press Releases
Firewall Elements
Appropriate Interdepartmental Communications
Physical Separation of Departments
Prevention of Personnel Overlap
A Reporting System
Personal Trading Limitations
Record Maintenance
Proprietary Trading Procedures
Communication to All Employees
Standard II(A): Application of the Standard
Example 1 (Acting on Nonpublic Information):
Example 2 (Controlling Nonpublic Information):
Example 3 (Selective Disclosure of Material Information):
Example 4 (Determining Materiality):
Example 5 (Applying the Mosaic Theory):
Example 6 (Applying the Mosaic Theory):
Example 7 (Analyst Recommendations as Material Nonpublic Information):
Example 8 (Acting on Nonpublic Information):
Example 9 (Mosaic Theory):
Example 10 (Materiality Determination):
Example 11 (Using an Expert Network):
Example 12 (Using an Expert Network):
Standard II(B): Integrity of Capital Markets - Market Manipulation
Guidance
Information-Based Manipulation
Transaction-Based Manipulation
