Objectives and Constraints of Institutional Investors

Objectives and Constraints of Institutional Investors -...

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Unformatted text preview: Appendix: Objectives and Constraints of Institutional Investors • Mutual Funds – Pool investors funds and invests them in financial assets as per its investment objective • Endowment Funds – They represent contributions made to 2- 1 charitable or educational institutions Appendix: Objectives and Constraints of Institutional Investors • Pension Funds – – – 2-2 Receive contributions from the firm, its employees, or both and invests those funds Defined Benefit – promise to pay retirees a specific income stream after retirement Defined Contribution – do not promise a set of benefits. Employees’ retirement income is not an obligation of the firm Appendix: Objectives and Constraints of Institutional Investors • Insurance Companies – Life Insurance Companies • • growing surplus if the spread is positive • fiduciary principles limit the risk tolerance • liquidity needs have increased • 2-3 earn rate in excess of actuarial rate tax rule changes Appendix: Objectives and Constraints of Institutional Investors • Insurance Companies – Nonlife Insurance Companies • • fiduciary responsibility to claimants • Risk exposure low to moderate • 2-4 cash flows less predictable liquidity concerns due to uncertain claim patterns Appendix: Objectives and Constraints of Institutional Investors • Banks – – – – 2-5 Must attract funds in a competitive interest rate environment Try to maintain a positive difference between their cost of funds and their return on assets Need substantial liquidity to meet withdrawals and loan demands Face regulatory constraints ...
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