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Strategic Risk Management: A Practical Guide to Portfolio Risk Management by David Iverson

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CHAPTER 4

Fund's Purpose

Determining the fund's purpose is paramount. The specific articulation of the purpose is through clear, written investment goals and objectives. Without clear investment goals, it would be difficult to evaluate suitable investment strategies, managers, and products.

At a high level, every investor—a pension fund or an individual saving for retirement—has a similar purpose: how much needs to be saved and how should it be invested so that there is a sufficient probability of having enough money to achieve a future goal.

Having clear investment goals and objectives is essential. Where competing objectives exist, are they appropriately prioritized? How much will be distributed? How stable should the distributions be? And so on. Objectives need to be realistic in seeking to maximize the chances of meeting investment goals.

CLEAR DEFINITION

Clearly defined investment objectives should be simple, measurable, timely, achievable, and realistic.

  • Simple. It should be easy to understand the nature of the risk assumed and expected returns that can be achieved. The statement of risk and return should be clear and intuitive.
  • Measurable and timely. The performance results should be objective and reliable so investors can regularly compare these to the desired investment objectives.
  • Achievable and realistic. The objectives should be realistic in terms of the estimates of expected returns and achievable if good investment management arrangements and implementation practices ...

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