Chapter 28 – Investment Policy and the Framework of the CFA Institute
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CHAPTER TWENTY-EIGHT
INVESTMENT POLICY AND
THE FRAMEWORK OF THE CFA INSTITUTE
CHAPTER OVERVIEW
This chapter explores the overall process involved with the decision to invest. The chapter describes the
LEARNING OBJECTIVES
After studying this chapter, the student should have an understanding of how objectives and constraints affect
the formation of investment policies. They should understand this within the context of the four stages of the
PRESENTATION OF MATERIAL
28.1 The Investment Management Process
This section presents the major factors that influence the formation of investment policy. The overall
28.2 Constraints
Portfolio objectives consist of return requirements and levels of risk tolerance of investors. Investors
must be able to estimate their willingness and ability to bear risk. Table 28.5 presents a matrix of
28.3 Policy Statements
An investment policy statement (IPS) serves as a strategic guide to the planning and implementation of
an investment program. This section provides an actual IPS for students to read. The inset box labeled
Chapter 28 – Investment Policy and the Framework of the CFA Institute
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28.4 Asset Allocation
Asset allocation consists of specifying asset classes to be included in the portfolio, specifying capital
28.5 Managing Portfolios of Individual Investors
The major consideration for most individual investors is tied to the life cycle. Factors such as the need for
28.6 Pension Funds
With a defined benefit plan, the plan sponsor absorbs the investment risk. Major considerations made by
28.7 Investments for the Long Run