FINC3600 Finance in Practice S1 2022 Project 2: Portfolio Management Brief
Investment Goals & Objectives
Portfolio Review
Portfolio Management Process
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Portfolio Strategy & Asset Allocation
Investment
Selection & Implementation
April 2022
Project Learning Objectives
By completing this project you will:
▪ Apply portfolio construction concepts and techniques from past finance courses in a realistic setting
▪ Communicate complex financial reasoning to a diverse audience, in writing and in person
▪ Gain insight into how investment management teams collaborate effectively, make decisions,
under uncertainty, and communicate key recommendations
▪ Synthesise portfolio management theory and analysis of market data into portfolio
management guidance
▪ Understand and explain model applications, assumptions, and limitations ▪ Experience operating in an investment governance framework.
Project Learning Activities
By completing this project, you will:
▪ Integrate portfolio management theory with portfolio management practice ▪ Develop and peer review financial models
▪ Develop and peer review executive briefing reports
▪ Develop and peer review board-level written presentations
▪ Present and communicate in senior executive and board (committee) settings. Unit Learning Objectives
▪ LO1. demonstrate and integrate finance knowledge, concepts, and principles in a range of business contexts.
▪ LO2. identify, analyse, and solve business challenges reaching conclusions using fundamental concepts, principles and knowledge from the finance arena.
▪ LO3. communicate effectively and professionally using a range of communication modes in business contexts.
▪ LO4. recognise the need for, locate, evaluate and use information effectively.
▪ LO5. use different strategies to explore opportunities and construct new ideas, solutions, or
▪ LO6. evaluate issues relating to business ethics, sustainability and social responsibility in
addressing business challenges.
▪ LO7. make a positive contribution to a team-based structure.
This assignment is a group activity and requires teamwork. Groups remain the same as the ones that were allocated during the Week 3 workshop.
© 2022 The University of School 2
Pty Ltd (the ‘Fund’) is a registrable superannuation entity (RSE) licensee and is regulated by APRA.1
The Board of has delegated responsibility for recommendations around investment policy to the Investment Committee (IC). The central role of the IC is to assist the Board in its implementation of the Fund’s Investment Governance Framework (IGF). This includes determining the strategic asset allocation and investment objectives for the Fund’s products, monitoring the Fund’s investments, and consideration of proposed product changes. All IC decisions must comply with the Board-approved IGF, although the IC can recommend changes to IGF to the Board. The IC is made up the Fund’s Chair and several Board directors (not all Board directors are in the IC).
The Fund’s Chief Investment Officer (CIO) and Internal Investment Management Team (IIMT) make recommendations to the IC. The IC can endorse (or decline to endorse) recommendations, and in turn recommend that the Board approve the endorsed recommendations.
The team regularly develops and delivers strategic investment guidance to the IC. Manager selection and termination and portfolio implementation are covered by other groups of the IIMT; however, the AA team has a solid
understanding of the issues in these areas.
For this task, the AA team’s resources include ’s IGF, historical asset class data, historical economic data, and in-house software (written in Excel). The task has no ‘solution’; however, your recommendations should be well thought out and the AA team should be ready to explain them.
Your task has been broken down into five steps set out in the table below.
Your group, the Asset Allocation team (AA team), is part of the broader IIMT. The AA Team reports
directly to the CIO and plays a strategic role inside the Fund.
Five Steps
2. Analyse and evaluate the areas discussed in the project brief. Week 9-10
Assessment
1. Review the project brief, the Fund’s documents and other
information. Spend time considering and contextualising the problem so you can contribute effectively to a ‘brain storming’ team meeting. Your initial work and the outcomes of your team meeting will prepare the team for Week 9 and beyond.
Individual
Individual
3. Prepare a one-page written report that briefs the CIO on the specific Monday 09:00 areas covered by the guidance. Week 11 9/5/2022
4. Prepare and submit the slides for the IC presentation, which summarises the most important findings of your work including recommendations for future action.
Monday 09:00 Week 12 16/5/2022
5. Present a summary of the most important findings of your work, Week 12 including recommendations for future action, to the IC. workshop
Individual Group
1 is a fictitious fund.
© 2022 The University of School 3
Task Assessment
Your task will be assessed as follows (percentages of grade for the unit).
Participation
CIO Briefing Paper
Presentation Slides
Oral Presentation
Individual 5% Group
5% 7% 5% 7%
10% 15% 3% 15% 13% 30%
Participation (team contributions) is 5% per project and will be reviewed and assessed by facilitators during project workshops using the following scale:
Did not contribute at all (e.g., camera off during online facilitation) 0 Quiet contributor: limited interaction 1
Active contributor: contributed, but did not draw other team members into discussions 2 Team contributor: contributed and drew other team members to contribute 3
Based on the categories above you are allocated 0, 1, 2, or 3 points in the relevant meetings. These are then summed over the relevant weeks and scaled to an overall mark out of 5 points for project participation.
When working online with your team it is very important that you keep your video on and your microphone live (mute only as needed). This makes it easier to engage effectively with your team members. It also means that the facilitators are aware of your engagement and contribution. Failure to have your camera turned on may mean that the facilitator is unable to recognize fully your contribution to the class session.
Some things you can do to benefit your team and aid in your assessment when working with facilitators are:
• Ensuring that you are an active contributor
• Asking insightful questions
• Encouraging participation by others
• Summing up key discussion points as appropriate
Contribution
© 2022 The University of School 4
Task Timeline
Project 2 available to students. Project 2 Workshop.
Project 2 Workshop.
Individual (participation)
Individual (participation)
Individual and Group (participation and CIO brief)
Individual and group (presentation and slides)
Week (USyd Number) & Commencement date2,3
Activities
Updates / Assessments
12 16/5/22
Introduction
Submit presentation slides. Present findings to board.
PROJECT BRIEF
9/5/22 Project 2 Workshop. Submit CIO Briefing Report.
It is 31 March 2022. Your team, the Asset Allocation (AA) team, has been asked by the Chief Investment Officer (CIO) of (the ‘Fund’) to provide strategic guidance. The recommendations will be presented and discussed at the next Investment Committee (IC) meeting.
Scope of guidance
Your investment guidance to the IC will need to address two specific items:
1. Asset Allocation. You need to perform the Annual Review of the Asset Allocation of the Fund. You will be focussing on the current default MySuper option, which is the Growth strategy, and is where most of the Fund’s members are invested. You need to review the long-term strategic asset allocation to determine whether it is suitable to meet the Fund’s MySuper investment objective.4
While they are interested in an explicit recommendation, they are also interested in learning about ranges of outcomes and the robustness of your
recommendation to the assumptions used.
2. Lifecycle. The membership of the Fund is aging, and more members are moving towards the retirement phase of their lives. The Fund is considering how best to help these members through this change. The fund is considering a “default lifecycle investment strategy” (DLIS) for its default MySuper members. The DLIS automatically changes a member’s investment option and hence risk profile depending on their age. You need to investigate the implications of members having different risk profiles at different ages on their ability to save for retirement. Using such an analysis recommend which investment option (of the 4 that the fund has) the member should
2 All streams meet online through Zoom at regular, scheduled times. Once formed, teams will be working in Zoom using breakout rooms. You will be moved to your breakout room at the start of each Zoom session.
3 The University’s Student Wall Calendar may help you manage these dates.
4 An asset allocation financial model is available on Canvas.
In particular, you should consider whether it is desirable to add up to two of the
following asset classes: – Emerging market equities (growth); Australian Listed Property
(growth); International Listed Infrastructure (growth); Hedge Funds (defensive) and Global
Government Bonds (defensive). The IC will want to know how your assumptions drive the
allocation recommendations.
© 2022 The University of School 5
default to for each age range within the default lifecycle product.5 The CIO has suggested that examination of the effects of substantial market breaks or disruptions when a member is nearing retirement is a key issue that the IC would like analysed.
Deliverables
The CIO has requested that your team provide three deliverables for this project:
1. CIO briefing paper – The CIO has requested that a succinct CIO briefing paper be prepared in relation to the specific areas covered by the guidance. This is to check on progress and confirm the nature of the guidance you are preparing for the IC. There is to be one briefing paper per group, and it is to be no more than one page (no appendices or additional content allowed). To be submitted by Monday 09:00 on Week 11 (9th of May 2022).
2. Investment Committee presentation slides – You will develop a summary (in the form of succinct slide pack) of the most important findings of your work including recommendations for future action. The slide pack will be circulated to IC members before the presentation and must be submitted by Monday 09:00 on Week 12 (16th of May 2022). You must use your slides as submitted in your presentation.
3. Presentation to Investment Committee – Twenty (20) minute IC presentation including a question-and-answer session – This is a sit-down presentation that will summarise and discuss the most important findings of your work including recommendations for future action. Each team member will need to present during your presentation and responses should be concise and succinct. The presentation will occur in the workshop during week 12 (i.e., the 17th, 18th and 19th of May 2022 as regularly scheduled).
In addition to the above deliverables, you should retain all working papers and materials used to prepare the guidance so that you are able to respond to any detailed queries by the CIO.
5 A Lifecycle financial model is available on Canvas.
© 2022 The University of School 6
annuation Fund
annuation Fund (Abercrombie) is a small APRA-regulated public institutional profit-for-members superannuation fund that has traditionally targeted ancillary support staff of professional service providers such as legal and accounting practices.6
Five annexures provide relevant details for Abercrombie:
▪ Annexure 1 – The Investment Committee of annuation Pty Ltd
▪ Annexure 2 – annuation Pty Ltd – Investment Governance Framework ▪ Annexure 3 – Analysis
▪ Annexure 4 – MySuper Ratings
Financial Models
Two Excel financial models are available on Canvas to assist you develop your investment guidance.
Asset Allocation model
This Excel model allows you the flexibility to alter two sets of inputs
a. Assumptions about the future return and volatility of the various asset classes. When you open the model, the assumptions are initially derived from historic data. You need to consider whether that history will be an appropriate guide to the future. Be mindful when changing assumptions – you will need strong evidence and logic to justify what you do.
b. The maximum and minimum portfolio weights to be allocated to each asset class.
Default Lifecycle Investment Strategy model
This Excel model allows you to investigate a member’s account balance depending on a number of variables, which you can enter.
1. The switching ages within the DLIS
2. The expected return and risk assumptions for each investment option (should match your
conclusions in the Asset Allocation part of the case study)
3. Salary and superannuation contribution amount expectations for members
4. The impact of including a “shock” in your modelling. If you consider a shock, the model will
simulate two scenarios (shock and no-shock). The output is presented as two distributions (graphs) on the Analysis tab.
The Analysis sheet allows you to look at the outcome for your simulations. You can see the range of outcomes different scenarios produced.
6 APRA-regulated institutional fund: Any large (more than four members) superannuation fund regulated by the Australian Prudential Regulation Authority (APRA).
© 2022 The University of School 7
Rules and Guidelines
The guidance should be based on publicly available information released prior to 31 March 2022.
Investment Committee presentation
Please be aware of the following when preparing your IC presentation.
▪ An electronic copy of your presentation slides needs to be submitted via Canvas.
▪ Presentations usually are made in a replicated boardroom setting. Presenters and IC members will be seated around a (virtual) Boardroom table. This semester the presentations will be done
online using Zoom, as was the case for Project 1.
▪ Presentations must be no more than 10 minutes in length. There will be an additional 10
minutes of Q&A.
▪ Presentations should be in PowerPoint format.
▪ Presentations must be no longer than 10 slides in length (excluding title page, team
introduction page and appendices). Any additional materials and/or supporting analysis should
be contained in the Appendices.
▪ The introduction page is one slide introducing your team members, including photos and
names; although this would not be necessary for an internal team in a typical IC meeting.
▪ You should spend the majority of your presentation time elaborating and defending your recommendations, conclusions and assumptions. While a full understanding of the detailed research and analysis and careful modelling are all critical at arriving at appropriate decisions, your presentation should primarily focus on your higher-level insights, conclusions and
recommendations.
▪ Wear business casual attire to your presentation.
▪ Each team member should speak as part of the presentation. You may assume that the IC
knows who you are (no introductions are needed) and have received a copy of your presentation. You will spend the time in the presentation presenting two (2) recommendations as per the topics in the Scope Guidance. Following your presentation, the IC will ask you questions about your presentation. At least one question will be directed to each team member, and the question may not necessarily address the material you personally presented. Therefore, each team member must be able to discuss any part of your team’s recommendations.
▪ Do not read from a prepared script or your smart phone. Occasional reference to notes or your presentation are allowed but it is expected that most of your presentation time is spent looking at and speaking to the IC.
© 2022 The University of School 8
Annexure 1 – The Investment Committee
The Board of Trustees of a superannuation fund have a fiduciary responsibility for managing and investing the contributions of members. Unlike for-profit company boards, the Trustees of industry (not-for-profit) superannuation funds are required to act in the best interests of members.
To exercise their fiduciary responsibilities, the Board of Trustees of annuation Fund (the ‘Fund’) has delegated certain responsibilities to several Board committees:
▪ Audit, Risk and Compliance Committee ▪ Remuneration Committee
▪ Insurance Committee
▪ Investment Committee (IC)
The IC is populated by Board directors with a mixture of technical and non-technical backgrounds. This is an experienced IC, but few are investment experts. Unusually, the IC Chair is rotated from meeting to meeting.
The presentation is to the IC. The role of the IC is to invest funds in a manner consistent with the investment objectives set by the Board. Other responsibilities include:
▪ Investment policy
▪ Investment strategy
▪ Asset allocations
▪ Investment performance
▪ Appointment and monitoring of investment managers
The biographies of the IC are summarised below:
. Dubois became Chair of the Fund in December 2018 following the retirement of Mr Fred Johnston (who had been Chair for the previous 15 years).
Prior to this, Ms Dubois was the Deputy Chair of the Fund for the prior four years. She has a background as an executive officer in the Legal Assistants Association and is a nominated representative on the by reason of that position.
Mr Emet was appointed in December 2018 following the retirement of Mr Johnston. His current roles include membership of the Superannuation Expert Panel providing advice to the Government, Director of a large ASX company, a senior partner in a large accounting firm and a director of a charity for children facing long hospital stays. He has technical qualification in superannuation, accounting, law and investment management. He is known for ruthless time management and an insistence on relevance within committee meetings.
Professor Plum has been a member of the Board for the last five years and is an independent director. He has had a 20-year career as an asset consultant and maintains an academic position at a well- regarded university. He acts as a technical advisor to several pacific island sovereign wealth funds. He holds a Bachelor of Science degree, MBA and a PhD in Finance. Professor Plum is passionate about
© 2022 The University of School 9
investments and is known for expressing dissatisfaction at the end-of-financial-year performance analysis.
Louise has been an elected member of the Board for the last 10 years. She works as a legal assistant in the Superannuation practice of a large law firm and is knowledgeable in superannuation legislation and practices. Louise is passionate about achieving excellent retirement outcomes for the Fund’s members. She holds a Bachelor of Business degree.
Mr Anzahl is the most recent Board appointment and is an independent director. He holds directorships of several ASX listed companies in the property, retail and insurance sectors. He was a partner in a top-four accounting firm. Mr Anzahl is often frustrated at the level of debate amongst the directors and is sceptical of new investment ideas. He is Chair of the Audit and Risk Committee. He holds a Bachelor of Commerce degree.
Annexure 2 – annuation
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