Summary of everything needed for the course and exam: Institutional Investors - EBC4054.
I used this to study for the exam and got a 9.4/10 - I just began two days before the exam date.
Table of Contents
Opening lecture ...................................................................................................................................... 6
How to do the “pension math” ............................................................................................................ 13
Strategic Asset Allocation ..................................................................................................................... 15
The impact of costs on Asset Allocation .............................................................................................. 17
Alternative Investments: Private Equity ............................................................................................... 18
Alternative Investments: Real Estate .................................................................................................... 20
Alternatives Investments: Infrastructure .............................................................................................. 22
Relevance of ESG information .............................................................................................................. 23
Active Ownership .................................................................................................................................. 24
Philips Guest Lecture – Dr. Arian Borgers ............................................................................................. 26
1
,Overview:
• 2 hours, 3 open questions, closed book, you can use a non-programmable calculator (see
Syllabus for types that are allowed), no dictionary allowed
• Questions are a combination of theory (articles and lectures) and application of the theory
(assignments)
• All required materials can be tested. Next to the articles labeled as required for the exam this
includes lectures and the findings from the tutorial meetings
• You need to be able (for each required article) to reproduce the main findings and what
the implications are for Institutional investors
• Emphasis is on interpretation, not calculations
• No need to learn formulas by heart
• No need to be able to reproduce statistical tests
• No trick questions from footnotes or appendices
1. ALM: Whats the goal (paying liabilities)
⁃ Discount rate important - sometimes set to high, which lowers the current liabilities -
creates a more rosy picture
⁃ 2 pillars DB and defined contribution (shifts the responsibility to the employee)
2. SAA: You need to invest in assets to meet your long term liabilities
⁃ Investment horizon is highly important - the longer the horizon, the more risk you can
take - because in the long run the risk gets smaller because of time diversification
3. TAA: Active or passive asset allocation - Core satellites
< PE
< Infrastructure
< Real estate
< ESG investing
Week 1
- Understand basic pension system
o 3 pillars
o Defined benefit vs. Defined contributions (pillar 2)
- Challenges for pension funds
o Longevity
o Low interest rates
o Low returns
- As a results of that switch from DB to DC, risk passed to employees
2
, Week 2
o How much to save in order to meet the objective?
o Determine Liabilities
- These can be manipulated
o Why? To hide a deficit and gamble resurrection
- Communication is key
Week 1 and 2
1. My objective - liabilities
2. Find Assets to meet these objectives (ALM)
3. Where to put the money in the long term (SAA)
4. How to beat the average (TAA)
Week 3
⁃ How do liabilities influence the assets you choose?
⁃ Risk-return is not constant but varies over time
⁃ Equities become less risky at longer horizons (due to time diversification)
⁃ So the asset mix in influenced by time horizon till the objective
⁃ Active vs. Passive Management
⁃ Majority is active
⁃ Overconvidence by retail and marketing power to beat the market
⁃ Institutional investors move to core-satellite -> 2 buckets (on with assets with which they cannot
beat the market -> go passive and a second with which beating the market is possible (PE,
Infrastructure, Real Estate) -> go active)
⁃ Goal: To lower fees, which has significant long-term effect on investment outcomes
Week 4
⁃ PE
⁃ Buyout vs. VC fund
⁃ Outperforms public market
⁃ Illiquidity premium
⁃ Skill
⁃ Market inefficiency
⁃ Long term investment
⁃ Lot of dry powder (money waiting being invested -> overpaying for deals)
⁃ Real estate
⁃ Public investment - indirect investment
⁃ Private investment - direct investment
⁃ Valuation private is delayed
⁃ Leads to smoothing
3
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller tiborhering. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $7.60. You're not tied to anything after your purchase.
