Chapter 9 – Investment Mandates, Portfolio Analytics and Client Reporting Flashcards
Which of the following, according to the Brunel Asset Management Accord, is NOT in itself a likely cause for concern?
(a) Failure to manage risk appropriately.
(b) A change in the expected investment style.
(c) Short-term underperformance.
(d) Lack of understanding of reasons for underperformance.
(c) Short-term underperformance.
What behavioural step needs to be taken to reinforce the length of the client mandate in order for fund manager time horizons to lengthen to those sought by their clients?
(a) Clients assess investment performance less frequently and predictably.
(b) Clients assess investment performance more frequently and unpredictably.
(c) Clients raise questions about the ESG characteristics of each company newly purchased by a
fund manager.
(d) Clients raise questions about the ESG characteristics of each company that is sold by a fund
manager.
(a) Clients assess investment performance less frequently and predictably.
How might a fund manager demonstrate to clients that it is addressing the challenge of resourcing of stewardship activities?
(a) Detail the processes by which it prioritises engagements.
(b) Set out how it is adding stewardship staff and building expertise among its fund managers.
(c) Demonstrate its active participation in one or more formal collective engagement vehicles.
(d) All of the above.
(d) All of the above.
Which of the following is NOT a typical way in which asset managers integrate ESG?
(a) Using ESG as a threshold requirement before investment can be considered.
(b) Using ESG as a factor that informs the valuation.
(c) Using ESG as a risk assessment that offers a level of confidence in the valuation.
(d) Using ESG as a basis for explaining investment holdings to clients.
(d) Using ESG as a basis for explaining investment holdings to clients.
Which of the following are expected to be reported by the Pensions and Lifetime Savings Association (PLSA) disclosure guide for public equities?
(a) ESG integration and stewardship.
(b) Social impact and stakeholder engagement.
(c) ESG risk and carbon footprint.
(d) Social risk and board engagement.
(a) ESG integration and stewardship.
Which of the following is NOT one of McKinsey’s proposed dimensions of investing for the purposes of applying sustainable investing practices?
(a) Investment beliefs and strategy.
(b) Regulatory and policy environment.
(c) Performance management.
(d) Public reporting.
(b) Regulatory and policy environment.
Which of these forms of asset owner is most likely to apply an exclusion policy barring investment in all assets exposed to a particular business area?
(a) Defined benefit (DB) pension scheme.
(b) General insurance business.
(c) Charitable foundation.
(d) Sovereign wealth fund.
(c) Charitable foundation.
Why might a fund manager disagree with an external researcher’s ESG analysis of a particular asset in its portfolio?
(a) The fund manager may have greater insight from its direct dialogue with the asset than is available in public disclosures on which the research is based.
(b) The fund manager may believe that the asset has an active programme of improvement that is likely to be recognised in a different rating in due course.
(c) Both a and b.
(d) Neither a nor b.
(c) Both a and b.
What is the clearest risk from an asset owner leaving voting decision-making in the hands of its fund managers?
(a) Fund managers will fail to align the votes with their investment thesis.
(b) If a company is held by more than one fund manager, the asset owner’s shares may be voted
differently.
(c) Votes are more likely to be lost in the voting system.
(d) This reduces fund manager accountability for their decisions.
(b) If a company is held by more than one fund manager, the asset owner’s shares may be voted
differently.
Which of the following is NOT a driver for clients to seek ESG investment, at least for one class of client?
(a) Fiduciary duty.
(b) Reputational risk.
(c) Personal ethics.
(d) A belief that social issues are unimportant.
(d) A belief that social issues are unimportant.
Why might a client concentrate their attention on ESG outliers in their active monitoring and assessment of fund manager performance?
(a) Because companies with weak ESG performance will test how effective fund manager ESG integration is in practice.
(b) Because allowing the fund manager to choose which case studies are focused on in discussions may lead to less insight.
(c) Because the client can focus on ESG factors of most concern to them at a given time.
(d) All the above.
(d) All the above.
Which of the following is NOT a way of assessing whether a fund manager effectively integrates ESG factors, according to the PLSA?
(a) Examples of where and why the manager is prepared to take either stock or sector ESG risks
or where it sees opportunities.
(b) How much financial return is directly attributable to ESG factors.
(c) Quantitative or qualitative examples of material ESG factors identified in fundamental analysis and stock valuation.
(d) Identification of long-term ESG secular trends and themes and the extent to which they have influenced portfolio construction decisions.
(b) How much financial return is directly attributable to ESG factors.
Which of the following is likely to be a primary ESG driver for a European defined benefit pension scheme?
(a) Reputational risk.
(b) Fiduciary duty.
(c) Personal ethics.
(d) Founding aims.
(b) Fiduciary duty.
Which of the following investors will most likely have the lowest risk tolerance?
(a) Life insurer.
(b) Sovereign wealth fund.
(c) General insurer.
(d) Foundation.
(c) General insurer.
Which two ESG specific areas of disclosure are requested by the International Corporate Governance Network (ICGN) Model Mandate?
(a) A breakdown of the return on investment for each stakeholder group and details of how each form of ESG risk type has been hedged by the portfolio manager.
(b) A materiality map identifying the ESG impact of all investments and a detailed disclosure of the voting record of all executive and non-executive directors.
(c) A detailed disclosure of stewardship engagement and voting activity must be made, and the manager’s assessment of ESG risks must be embedded in the portfolio.
(d) A pro-rata environmental footprint of all investments must be estimated and the impact of all
externalities from investments must be identified.
(c) A detailed disclosure of stewardship engagement and voting activity must be made, and the manager’s assessment of ESG risks must be embedded in the portfolio.
