Module 8
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Questions and Answers

What is the primary document governing a pension plan's investment program?

  • Financial Risk Assessment Report (FRAR)
  • Statement of Investment Policies and Procedures (SIPP) (correct)
  • Investment Portfolio Summary (IPS)
  • Pension Investment Strategy (PIS)

    • Which of the following is NOT typically included in a pension plan's Statement of Investment Policies and Procedures (SIPP)?

  • Income tax filing requirements (correct)
  • Asset allocation and risk tolerance
  • Objectives and constraints
  • Governance and reporting requirements

    • In which Canadian province is a written Statement of Investment Policies and Procedures (SIPP) NOT mandated for pension plans?

  • Quebec
  • Prince Edward Island (PEI) (correct)
  • Ontario
  • Alberta

    • How often are administrators required to review and amend the SIPP for Defined Benefit (DB) or administrator-directed Defined Contribution (DC) plans according to Canadian pension legislation?

    <p>Annually</p> Signup and view all the answers

    Which entity recommends the content to include in a pension plan's Statement of Investment Policies and Procedures (SIPP) as a standard of good practice for registered pension plans?

    <p>Office of the Superintendent of Financial Institutions (OSFI)</p> Signup and view all the answers

    What aspect of a pension plan's SIPP does the process for decision approval and implementation address?

    <p>Responsibilities clarification</p> Signup and view all the answers

    What is the definition of 'alpha' in investment returns?

    <p>Return on investment portfolio that exceeds the market return</p> Signup and view all the answers

    According to the Efficient Market Hypothesis, what does alpha result from?

    <p>Random chance</p> Signup and view all the answers

    What are some reasons for terminating an investment manager?

    <p>Failure to meet performance metrics</p> Signup and view all the answers

    In pension plans, what are common types of investments represented?

    <p>Pooled vehicles, stocks, real estate</p> Signup and view all the answers

    What is a key characteristic of bonds?

    <p>Specific maturity dates that normally pay interest until maturity</p> Signup and view all the answers

    How do pooled funds operate in pension plans?

    <p>Pool contributions to purchase units</p> Signup and view all the answers

    What distinguishes the balanced investment management approach from the specialist approach?

    <p>Balanced approach uses a balanced manager overseeing different asset classes</p> Signup and view all the answers

    What is the maximum ownership limit in terms of shares eligible to elect a board according to federal pension standards legislation?

    <p>30%</p> Signup and view all the answers

    What is the cap on investments in any single entity under federal pension standards legislation?

    <p>10%</p> Signup and view all the answers

    Under the federal PBSA, for related-party transactions, when can the transaction value be deemed nominal by the plan administrator?

    <p>When it is below $10,000</p> Signup and view all the answers

    What must a DB pension plan SIPP disclose in terms of investment categories under the federal PBSA?

    <p>Derivatives, Options, and Futures only</p> Signup and view all the answers

    What aspect of asset mix should be outlined in a DB pension plan SIPP according to the federal PBSA requirements?

    <p>Expected portfolio rate of return</p> Signup and view all the answers

    Under the federal PBSA requirements, what is one of the considerations for lending cash and securities?

    <p>Maximum exposure limits</p> Signup and view all the answers

    What factor should a DB pension plan administrator consider regarding the response of liabilities and investments to economic events when preparing a SIPP?

    <p>Fluctuations in interest rates</p> Signup and view all the answers

    What type of employment changes can impact retirement patterns and should be considered when developing a statement of investment policy for a DB pension plan SIPP?

    <p>Salary reductions or freezes</p> Signup and view all the answers

    What is a key benefit of alternative investments according to the text?

    <p>Potential for higher returns due to efficient and liquid markets</p> Signup and view all the answers

    Why is valuation and performance measurement considered a challenge in alternative investments?

    <p>Objective methods to determine fair value in infrastructure and private equity</p> Signup and view all the answers

    What is one factor that plan administrators should consider when choosing investment options for a non-pension Capital Accumulation Plan (CAP) plan?

    <p>Variety of investment options to meet members' needs</p> Signup and view all the answers

    What is a common risk associated with alternative investments?

    <p>Short histories and lack of robust data for alternative assets</p> Signup and view all the answers

    Which activity is NOT a component of investment manager monitoring?

    <p>Evaluating investment manager's communication skills</p> Signup and view all the answers

    Why do assets like commodities serve as inflation-hedging assets in alternative investments?

    <p>Aligning with inflationary benefit promises</p> Signup and view all the answers

    What is the purpose of a request for proposal (RFP) for the selection of a pension fund investment manager?

    <p>To expand due diligence scope beyond past performance</p> Signup and view all the answers

    What role does leverage commonly play in alternative investments?

    <p>Common use of leverage in alternative investments for additional gains</p> Signup and view all the answers

    What should be defined in the mandate when selecting an investment manager?

    <p>Manager's responsibilities and acceptable vehicles</p> Signup and view all the answers

    What is a significant challenge posed by regulatory variability in alternative investments?

    <p>Potential differences in regulations for alternative asset managers by location</p> Signup and view all the answers

    Which metric assesses the dispersion of returns in a portfolio?

    <p>Standard deviation</p> Signup and view all the answers

    What is NOT an example of a monitoring metric used in investment manager activities?

    <p>Return on Equity (ROE)</p> Signup and view all the answers

    'Assessing success in meeting objectives' is a component of which activity related to investment manager monitoring?

    <p>Manager's performance evaluation</p> Signup and view all the answers

    'Develop Scoring Systems' is a step involved in the selection of an investment manager. What is its purpose?

    <p>Establishing comprehensive scoring based on gathered data</p> Signup and view all the answers

    'Meet Manager Constraints' is a crucial step in selecting an investment manager. What does it involve?

    <p>'Identifying any limitations early to streamline the selection process</p> Signup and view all the answers

    What does the 'Target asset allocation' provide information about?

    <p>Description of the desired distribution of assets</p> Signup and view all the answers

    What is the main difference between active and passive fund management?

    <p>Active management involves actively buying, holding, and selling securities, while passive management mirrors market indexes.</p> Signup and view all the answers

    Which type of risk arises when the market value of investments fluctuates due to interest rate changes?

    <p>Interest Rate Risk</p> Signup and view all the answers

    What is the primary focus of liability-driven investing (LDI) in managing pension plan risk?

    <p>Aligning asset returns with liabilities</p> Signup and view all the answers

    Which strategy best defines responsible investing (RI)?

    <p>Integrating ESG factors in investment selection and management</p> Signup and view all the answers

    What do private equity investments typically involve?

    <p>Providing capital to non-publicly traded enterprises</p> Signup and view all the answers

    In hedge funds, which type focuses on companies involved in significant corporate transactions?

    <p>Event-driven funds</p> Signup and view all the answers

    What is the goal of relative value funds in hedge funds?

    <p>To exploit price discrepancies between related securities</p> Signup and view all the answers

    Which type of investments include energy, agricultural, industrial, and precious metals?

    <p>Commodities</p> Signup and view all the answers

    Which risk arises when the market value of investments changes not matched by corresponding liabilities?

    <p>Mismatch Risk</p> Signup and view all the answers

    What is the primary aim of Liability-Driven Investing (LDI)?

    <p>To preserve funded position of the plan over time and assist in cash flow planning or plan wind-up.</p> Signup and view all the answers

    Hedge funds do not employ strategies like short selling and leverage for additional gains.

    <p>False</p> Signup and view all the answers

    Infrastructure and private equity assets do not match long-term liabilities.

    <p>False</p> Signup and view all the answers

    Alternative assets have high correlation with stocks and bonds, increasing overall portfolio risk.

    <p>False</p> Signup and view all the answers

    Valuation and performance measurement in alternative investments are objective and have standardized benchmarks.

    <p>False</p> Signup and view all the answers

    Leverage is not commonly used in alternative investments.

    <p>False</p> Signup and view all the answers

    Alternative assets have extensive historical data available for analysis.

    <p>False</p> Signup and view all the answers

    High management fees are not typically associated with hedge funds and private equity investments.

    <p>False</p> Signup and view all the answers

    Fund-of-fund structures in alternative investments do not lead to additional fees.

    <p>False</p> Signup and view all the answers

    Alternative investments provide investors with more control compared to traditional investments.

    <p>False</p> Signup and view all the answers

    Regulations for alternative asset managers are consistent across all locations.

    <p>False</p> Signup and view all the answers

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