Investing in Pension Funds and Endowments

Investing in Pension Funds and Endowments

by Russell L. Olson

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Product Details

ISBN-13: 9780071425629
Publisher: McGraw-Hill Education
Publication date: 02/22/2003
Sold by: Barnes & Noble
Format: NOOK Book
Pages: 440
File size: 3 MB

About the Author

Russell Olson has over three decades of experience as an institutional investing consultant and manager. The former director of pension investments for Eastman Kodak, Olson holds an M.B.A. from Harvard Business School and is also the author of The Independent Fiduciary.

Table of Contents

Prefacexiii
Introductionxvii
1Keeping Score I: Investment Returns1
Total Return1
Valuing Our Investments2
What's a Good Rate of Return?3
Benchmarks for a Manager13
Returns on a Portfolio of Investments16
In Short18
Review of Chapter 119
Appendix 1ACalculating Rates of Return22
2Keeping Score II: Risk27
Volatility28
Correlation32
Systematic Risk and Diversifiable Risk32
What to Do About Risk33
The Efficient Frontier34
Risk-Adjusted Returns: The Sharpe Ratio35
Application of Risk-Adjusted Returns37
Risk of Increased Pension Contributions38
Derivatives40
Overall Fund Risk43
In Short44
Review of Chapter 244
3Investment Objectives46
Time Horizon47
Risk49
Return: Target Asset Allocation/Benchmark Portfolio51
Rebalancing57
Preparing a Statement of Investment Policies58
In Short64
Review of Chapter 364
4Asset Allocation66
Characteristics of an Asset Class67
Asset Classes74
Putting It All Together90
In Short98
Review of Chapter 498
5Selecting Investment Managers102
Our Goal102
Three Basic Approaches103
Fees121
In Short124
Review of Chapter 5124
Appendix 5AExample of a Questionnaire for a Prospective Equity Manager126
6Managing Investment Managers131
The Management Agreement131
Objectives of the Account131
Monitoring Managers132
When to Take Action141
Dollar-Cost Averaging149
Rebalancing149
In Short152
Review of Chapter 6153
Appendix 6AExample of Annual Questionnaire for an Existing Equity Manager154
Appendix 6BDollar-Cost Averaging160
Appendix 6CAn Excel Program for Use in Rebalancing162
7Investing in Real Estate163
Private Investments163
Core Real Estate165
Venture Real Estate167
Ways to Invest in Real Estate170
International Real Estate174
In Short175
Review of Chapter 7175
8Alternative Asset Classes177
Venture Capital Funds177
Buy-In Funds181
Buyout Funds and LBOs182
Distressed Securities184
Natural Resources185
Liquid Assets: Absolute Return Programs188
Hedge Funds199
In Short200
Review of Chapter 8200
Appendix 8AHow Does Leveraged Convertible Arbitrage Work?202
9Negotiating Agreements for Private Investments204
An ERISA Problem205
Terms and Conditions for Consideration by Plan Sponsors When Investing in Private Investment Funds206
Other Due Diligence Procedures217
In Short218
Review of Chapter 9219
Appendix 9AA Real Estate Performance Fee Schedule221
10The Master Trustee225
Keeping the Books226
Management Information228
Adding Sponsor Flexibility230
An Extension of the Plan Sponsor's Staff231
Criteria for Selecting a Master Trustee232
In Short232
Review of Chapter 10233
Appendix 10AThe Master Trustee/The Master Custodian234
11Bells and Whistles236
The Bank236
The Master Portable Alpha Account241
Securities Lending243
Hedging Foreign Exchange245
Soft Dollars249
In Short253
Review of Chapter 11254
12Information Retrieval255
Committee Meeting Records255
Contracts and Agreements256
Permanent Files on Each Manager256
Financial Reports257
Current Correspondence File257
Manager Notebook258
Money Manager Files258
In Short259
Review of Chapter 12259
13Governance260
Standards to Meet260
Fiduciary Committees262
Staff268
Interaction of Committee and Staff272
Advice of Counsel277
Proxies278
In Short279
Review of Chapter 13279
Appendix 13AQuestions to Consider in Evaluating a Plan Sponsor's Investment Organization281
14Keeping Score III: Liabilities284
Measuring a Pension Liability284
Pension Liabilities for Active Employees286
Pension Expense and Pension Contributions289
Immunization292
Impact of Liabilities on Investment Strategy293
Impact of Pension Expense on Corporate Budgets294
In Short294
Review of Chapter 14295
15Coordinating Pension Financing at a Company's Subsidiaries296
Global Policies297
Can One Size Fit All?300
Keeping Informed302
In Short302
Review of Chapter 15302
Appendix 15ADraft of Pension Funding Statement for Subsidiary X304
16Defined-Benefit Plans Versus Defined-Contribution Plans309
Changes in the Public Sector313
A Word About Lump Sums313
In Short314
Review of Chapter 16315
17Endowment Funds316
The Total Return, Imputed Income Approach317
"Owners" of the Endowment Fund319
Investing Endowment Funds321
Social Investing324
In Short326
Review of Chapter 17327
Appendix 17APro Forma Results of the Imputed Income Method329
Appendix 17BThe Total Return or Imputed Income Method330
Appendix 17CUnit Accounting332
18Aphorisms337
Investing Under Uncertainty337
"Conventional Wisdom"337
Playing the Odds338
What We Don't Know339
Diversification339
Reversion to the Mean339
A Disconnect340
Keys on the Piano340
Discontinuities and Murphy's Law341
The Dreaded Disease of Myopia341
A Game of Inches342
I Was Wrong342
The Open Mind343
On Taking Advice343
Thinking Outside the Box344
Opportunists345
Leverage346
Question the Numbers347
Close Enough Is Good Enough-and Sometimes Better348
Why?349
So What?349
Impatience350
Trust350
Aphorisms of Others351
In Short356
Answers to Chapter Review Questions357
Bibliography395
Index397

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