Assessment Instructions

You are a Pension Consultant with a leading Investment Management company. The company conducts an annual pension review meeting and you are expected to attend. This year, the CEO has asked you to present a case study on a number of issues which are currently affecting the industry.

He has identified two main aspect which your presentation should focus on, optimal portfolio performance measurement and risk/returns assessment. The CEO called and informed you that at your presentation a few of the trustees of the Board would be present and so you should made mention of benchmarks since its not fully understood. In your case study, highlight the following:

1. Assess two main factors which a portfolio manager should always consider before designing investment strategies.

2. Evaluate the appropriateness of using benchmarks in creating optimal portfolios. In your evaluation ensure that you make mention of the importance of incorporating benchmarks such as

The market index

Benchmark normal portfolio

Median of the manager universe.

Examine three weaknesses of using each of the three benchmarks to measure portfolio performances.

3. Further analysis should also include you distinguishing amongst the different types of performance measures. Outline how each is calculated, state whether each measure assumes that the risk undertaken is systematic, unsystematic or a total while ensuring that you explain how each measure relates to excess returns and the relevant risk.

4. Finally examine how each measure relates to excess returns and the relevant risk. In your analysis make a comparison between two of the four performance measures which would best be applicable in an economy slowly recovering from recession.