1. Your company, ABC plc has just been spun off by its parent firm, PBC Industries, into a

separate firm. ABCs pension fund, currently amounting to 250 million of assets, has also

been spun off. ABCs board of directors has asked you to study proposals from a number of

investment management firms, each offering to manage the pension fund. You are to give

the board a report discussing the different styles of management that are available and making

recommendations about which firms should be seriously considered and how ABC should

instruct them to manage the pension fund if they are hired. Carefully describe the following:

a. What is passive investment management? What kinds of things does a passive manager do?

b. What factors would you look at to judge if one passive manager is better than another?

c. If passive management is chosen, what instructions might you want to give the fund manager

to tailor the optimal passive strategy for ABCs pension fund?

d. What is active investment management? What kinds of things does an active manager do?

e. How would you judge if one active manager is better than another?

f. If active management is chosen, what instructions might you want to give the fund manager?