Assignment

On

Investment Policy Statement

Prepared for:

Mohd. Anisul Islam, CFA

Assistant Professor
Department of Finance
University of Dhaka

Prepared by:

Shaikh Saifullah Khalid

Section: B
Id No: 23-160
Department of Finance
University of Dhaka

Date of Submission: 21 December, 2020

 Investment Policy Statement Prepared for Muntasir Mamun
Background and Investment Objectives:
This IPS is prepared for Mr. Muntasir Mamun in meeting his financial objectives. This statement
includes Mr. Muntasir’s objectives, expectations, investment structure and future responsibilities
for both parties.
The main purposes of this portfolio are: i) supporting Mr. Muntasir’s current lifestyle and ii)
providing the cost of marriage after 4 years. Maintenance of current lifestyle is the primary
objective. For fulfilling this objective Mr. Muntasir needs BDT 150,000 yearly. Moreover, Mr.
Muntasir intends to marry and settle in Chittagong. For marriage purpose, Mr. Muntasir plans to
spend BDT 500,000.
For establishing Mr. Muntasir’s asset allocation, we are considering his current assets and
expected cash needs. Mr. Muntasir is expecting moderate rate of return associated with lower
portfolio volatility.
Balance for portfolio: BDT 50,00,000

Investment Parameters
Risk Tolerance:
The portfolio manager has determined that Mr. Muntasir is willing to withstand short-term portfolio
volatility. (Check Appendix 1)
Time Horizon:
Mr. Muntasir has an investment time horizon that exceeds 20 years.
Asset Class Preferences:
Mr. Muntasir and his portfolio manager have chosen these asset classes:
▪ Savings certificate and other fixed income securities
▪ DS30 stocks
▪ Mutual funds
Asset Class Sub asset class Target allocation
Equity DSE 30 Index, this index is constructed with 30 leading 50-55%
companies which can be said as investable index of the
exchange.
Fixed income Savings certificate 30-35%
Mutual funds - 5-7%
Cash - 10%

Liquidity Preferences:
Mr. Muntasir wishes to maintain within his portfolio a minimum cash balances of BDT 200,000.

Portfolio management
Discretionary Authority:
Here non-discretionary authority is applicable. Portfolio manager must discuss with the client
before implementation.
Rebalancing:
Depending on the market conditions, when necessary, cash inflows/outflows may be invested in
a way consistent with the strategic asset allocation. In absence of cash flow, portfolio allocation
will be checked semi-annually. Deviation of +/- 2.5% is to be maintained.

Duties and Responsibilities

Portfolio Manager Responsibilities
▪ Developing asset allocation
▪ Recommending investment options
▪ Monitoring costs of investment strategy
▪ Drafting and maintaining the IPS
▪ Performance evaluation

IPS Review:
Mr. Muntasir will review the IPS annually to determine investment objectives are being fulfilled.
The portfolio manager will also evaluate the IPS annually to measure the feasibility of portfolio
asset selection and objectives of clients.
 Appendix 1: Risk Tolerance Questionnaire for Mr. Muntasir
1) Describe the Investor's knowledge of investments.
a) None
b) Limited
c) Good
d) Expert

2) What is the Investor's investment attitude?

a) Investor is more interested in capital conservation than in seeking captial growth.
Investor prefers to take moderate income and little or no growth in exchange for
stability and minimum risk.
b) Investor knows that to achieve higher returns, risk is a must. Investor is ready to
accept moderate level of volatility in the value of his/her portfolio for greater income
and/or growth potential.
c) Investor seems to be more aggressive in risk taking to pursue the possibility abnormal
return.

3) Suppose that you are offered employment that involves the choice of a fixed salary,
variable compensation that could be higher or lower than the fixed salary, or some mix of
the two. Which of the following would you choose?
a) Entirely fixed salary
b) Mostly fixed salary
c) Entirely variable compensation
d) Mostly variable compensation
e) Combination of both

4) Which of the following would best describe the Investor's reaction to short-term
fluctuations in his portfolio?
a) Investor would be extremely unhappy about any fluctuations in the value of the
investment portfolio.
b) Investor would be moderately concerned about short-term fluctuations in the value of
portfolio
c) Investor would have some concern about short-term fluctuations in the value of the
investment portfolio.
d) Investor would have noconcern about short-term fluctuations in the value of the
investment portfolio.

5) Investment Objective (Select most relevant):

a) Safety of principal
b) Generate income
c) Growth
 6) An investment decision involves both returns and risk - the higher the potential for returns,
the greater the risk of high volatility of results, including loss of capital. What influences
the Investor the most when making an important investment decision?
a) Investor is mainly influenced by the potential gain.
b) Investor is more influenced by the potential gain than by the potential loss.
c) Investor is more influenced by the potential loss than by the potential gain.
d) Investor is mainly influenced by the potential loss.

Findings from interview and questionnaire:

1. Mr. Muntasir is a moderate risk taker
2. He prefers windfall gain from investment
3. He prefers the security of his deposits but rather than depositing in banks he prefers
to earn moderate return by investing in alternative securities
 Investment Policy Statement of Stanford University Endowment Fund
Investment Objectives and Governance Structure:
Stanford’s investment strategy is prepared to give material support to annual University
operations along with preserving the purchasing power of the Endowment for future generations
of students, scholars and faculties. These inter-dependent goals involve an investment program
which is equity-based to generate sufficiently higher long-term real rate of returns, and well-
diversified to reduce portfolio volatility and lessen the risk of permanent loss of capital money.
Based on Mean-variance analysis, the current asset allocation is expected to generate a 7.7%
real annual return (considering inflation) with a standard deviation of 14.2%, which lead to an
expected compound real return of 6.7%.
Asset under portfolio: $17 billion
Principal-Agent: Stanford Management Company (SMC) is managing the funds of the
endowment program

Investment Parameters:
Risk Tolerance:
Considering this institution’s long-time horizon, the investment program is designed to accept a
responsible degree of illiquid condition to generate incremental returns. A smaller portion of the
portfolio is held in fixed income securities and cash (8%) for liquidity purposes.
Time Horizon:
Approximately 20 years or more
Asset Class Preferences(for July 2020):

Asset Allocation

Natural Resources

7% Real Estate
20% 8%
Private Equity
Domestic Equity
20% 30%
Fixed Income & Cash
8% 7% International Equity
Absolute Return

Asset Allocation Model:

SMC is following ‘Endowment Model’. They invested 30% funds in private and another 20% in
international/foreign equity.