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 (C)</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) (A)</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 (B)</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 (B)</p> Signup and view all the answers

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

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

What are some reasons for terminating an investment manager?

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

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

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

What is a key characteristic of bonds?

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

How do pooled funds operate in pension plans?

<p>Pool contributions to purchase units (D)</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 (A)</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% (B)</p> Signup and view all the answers

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

<p>10% (B)</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 (D)</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 (A)</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 (C)</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 (C)</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 (D)</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 (A)</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 (D)</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 (D)</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 (C)</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 (C)</p> Signup and view all the answers

Which activity is NOT a component of investment manager monitoring?

<p>Evaluating investment manager's communication skills (B)</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 (C)</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 (C)</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 (B)</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 (D)</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 (C)</p> Signup and view all the answers

Which metric assesses the dispersion of returns in a portfolio?

<p>Standard deviation (B)</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) (B)</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 (C)</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 (B)</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 (C)</p> Signup and view all the answers

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

<p>Description of the desired distribution of assets (A)</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. (C)</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 (D)</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 (C)</p> Signup and view all the answers

Which strategy best defines responsible investing (RI)?

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

What do private equity investments typically involve?

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

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

<p>Event-driven funds (B)</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 (C)</p> Signup and view all the answers

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

<p>Commodities (A)</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 (C)</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. (C)</p> Signup and view all the answers

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

<p>False (B)</p> Signup and view all the answers

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

<p>False (B)</p> Signup and view all the answers

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

<p>False (B)</p> Signup and view all the answers

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

<p>False (B)</p> Signup and view all the answers

Leverage is not commonly used in alternative investments.

<p>False (B)</p> Signup and view all the answers

Alternative assets have extensive historical data available for analysis.

<p>False (B)</p> Signup and view all the answers

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

<p>False (B)</p> Signup and view all the answers

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

<p>False (B)</p> Signup and view all the answers

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

<p>False (B)</p> Signup and view all the answers

Regulations for alternative asset managers are consistent across all locations.

<p>False (B)</p> Signup and view all the answers

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