《投资学》——讲义

Investment InstitutionsWhat are Investment institutions? Contractual savings institutions -Insurance companies -Pension fundsInvestment intermediaries -Mutual funds / unit trusts -Investment trusts -Hedge funds-Private equity company❝Investment institution is a financial intermediary (company) engaged in investing in, and managing, a portfolio of securities on behalf of their shareholders. ❝Indirect investment in capital/money marketinstruments via an investment institution is the most popular way for individuals to invest surplus funds ❝In the UK, 50 –60% of equities and bonds are held and managed by investment institutions ❝Benefits: diversified portfolio, professional managements❝All investment companies charge a fee (annual expense ratio) to shareholders to pay for theoperating costs and the management fee.❝Depositary institutions◦Intermediaries with a significant proportion of their funds derived from customer deposits, e.g. Building societies. Short-term liabilities.❝Contractual savings institutions◦Typically acquire funds at periodic intervals on a contractual basis❝Investment intermediaries◦Collective investment funds, Finance companies,Investment banks, Securities firms❝Two major groups: Insurance companies and Pension funds ❝Long-term liabilities❝Liquidity of their assets is less important than for depositary institutions –they can predict with greater accuracy their future payments due to customers❝Hence, they can invest a greater proportion of funds in long-term securities (bonds,equities)❝Primary objective is to protect policyholders (firms and individuals) from adverse events ❝Receive premiums from policyholders and promise compensation if specified events occur❝Two main segments: general insurance and life insurance❝Protection against personal injury and liabilities such as accidents, theft and fire❝Usually over a fixed time period e.g. 1 year ❝Claims usually made soon after the event so liabilities are mostly short term❝Hence they hold a greater proportion of liquid assets than life insurers. Holding financial assets might be viewed as a byproduct of the business.❝Some authors (e.g. B&T) do not view this category as an investment intermediary❝Protects the policyholder in the event of death, illness or retirement; hence long-term liabilities❝Term assurance, Whole-of-life policy, Endowment policy, Annuities❝Term assurance: provides insurance cover, for specifiedperiod, against the risk of death. If the insured survivesthe specified period then no payment is made.❝Whole-of-life policy pays a capital sum on the death ofthe person assured, whenever that event occurs.❝Endowment policy pays a capital sum at the end ofsome specified term or earlier if the assured dies withinthe term.-The premium for Whole-of-life and endowment policieswill be higher than for term assurance.❝Annuities: A policyholder pay an initial lump sumwhich used by the insurance company to providean agreed income until death.-The insurance company immediately creates a fund❝Risk: certain sums are guaranteed to be paid in thefuture and these sums exceed the value of thepremiums over the life of the contract.❝Match the term structure of its assets and liabilities❝Invest in long-term assets e.g. bonds, equities andmortgages.❝Provide retirement income (in the form ofannuities) to employees covered by a pension plan❝Personal scheme and public (state) scheme❝Funded scheme and unfunded (pay-as-you-go)scheme❝Funded scheme: Receive contributions fromemployers and/or employees and invest thesefunds in assets, including equities and bonds.Returns from the investment are used to paybenefits to members of the scheme.❝Two main types of funded scheme: defined benefit(DB) and defined contribution (DC)❝DB: the sponsor agrees to pay members ofthe scheme a pension equal to apredetermined percentage of their finalsalary (average salary), subject to themember‟s years of service❝DC: the return on the investmentsdetermines pension benefits❝Occupational schemes where the sponsor isthe employer have historically been DB,while private pensions are DC❝Risk: benefits to be paid are not known with certainty;inflation complications as it increases the benefits to bepaid by fund.❝Benefit from tax deferral: in the UK, contributions arenot taxable, pensioner pays income tax❝Pension fund trustees will determine the overallinvestment strategy❝They will often decide what proportion of assets to beheld in different asset classes❝Asset mix will be influenced by the maturity of the fund❝Long-term liabilities hence long-term assets❝Index-linked bonds, Equities❝Investment companies are classified, depending on whether their own capitalisation (number of shares outstanding) is constantly changing or fixed:-Open-end : capitalisation constantly changing; new investors buy additional shares from the company and some existing shareholders sell their shares back to the company.-Closed-end : fixed capitalization; share traded onexchange.open-ended❝Mutual funds / unit trusts❝Open-ended investment companies OEICsClosed ended❝Investment trusts ❝Hedge funds❝Private equity company❝Pool resources from many individuals andcompanies and invest these in a range of assets ❝Provide opportunities for small investors to investin a diversified fund at low cost❝Take advantage of lower transaction costs in trading larger blocks of securities❝Trusts in the legal sense; controlled and monitored by trustees; who act as guardian of the assets on behalf of the beneficial owners ❝Investment decisions❝When an investor buys a stake in a unit trust, he/she purchases a new unit in the fund (unless matched with a seller by the fund manager)❝Open-ended fund where the size of the fund can varyaccording to the number of contributors to the fund ❝Price of each unit reflects current value of the fund divided by the number of outstanding units❝All sales and purchases of units are made with the trust manager.❝Do not trade on stock exchange.❝Dual pricing structure: offer price (investors buy units)and bid price (investors sell units back to the trust)❝Annual management fee (usually 0.5 -1% of the funds under management), plus the bid-offer spread on buying and selling units❝Limited in the amount that can be invested in any single security❝Total return for a mutual fund includes reinvestment dividends and capital gain.❝A cumulative total return measures the actual performance over 3, 5 or 10 years.❝In Jan 2009, 8,000 domestic mutual funds withassets of $9.4 trillion in the US.❝Short-term funds:-Money market mutual funds ❝Long-term funds: -Capital market funds;-Equity (stock) funds, Bond funds or Hybrid(balanced) funds (hold combination of stocks and bonds)-Index funds: mutual funds holding an managed portfolio of bonds or stocks designed to match particular market index, such as S&P 500. Has low expenses ratio.❝OEICs operate similarly to a unit trust in the sense that they are open-ended❝But an OEIC has a company structure and can be listed on the stock exchange ❝Shares will reflect the value of the fund ❝Shares will have a single price (rather than the separate buying and selling prices indicated for unit trusts)❝Companies whose business is the investment of funds in financial assets.❝A closed-end fund, only able to raise more funds through rights issue shares or borrowing (bonds) ❝Not a trust in the legal sense; limited liability company with listed shares (traded in stock market).❝Investors can purchase ordinary shares of the ITC ❝A portfolio, managed by ITC‟s board of directors who determine the investment strategy❝Not faced with outflow of funds, so investment strategy does not depend on maintaining cash flows to meet future liabilities❝The existence of borrowed funds in the capitalstructure implies a …gearing effect‟ on the value of the ITC shares❝Net asset value (NAV) per share is the value of assetsless debt divided by number of issued shares-E.g. ITC capital structure: £8m in equities (4m shares) + £2m debt. Thus the NAV per share = £2-If the value of ITC asset portfolio were to doubled to £20m, then the NAV per would increase to £4.5 (£18m/4m shares)-A 100% in the value of assets held has led to an increase in the NAV per share of 125%❝The gearing effect is of benefit to shareholders in a rising stock market.❝The hedge funds are largely unregulated❝Reputation is as risky funds, shrouded by mystery and only accessible to the wealthy.❝According to IFSL, the number of hedge funds increased from 4,000 with $324bn of assets in 1999 to peak of 11,000 with $2,150bn in 2007, and then declined to 10,000 hedge funds and $1,500bn by the start of 2009. ❝There is no unique definition of hedge fund since it is an industry term rather than a legal term❝“Includes a multitude of skill -based investment strategies with a broad range of risk and returnobjectives. A common element is the use of investment and risk management skills to seek positive returns regardless of market direction.”❝A hedge fund is an actively managed investment fund ❝Seeks an attractive …absolute return‟, a return whether the market go up or down.❝Do not follow any benchmark, but rather just try to generate high returns (larger than ordinary available return) while managing risks, by exploiting various market opportunities❝Typical strategies include -Short selling,-Borrowing, Leverage -Use of derivatives❝Fees include a fixed fee and management fee e.g. 1-2% of assets plus 20-25% of upside performance.Hedge fundsMutual funds and pension fundsInvestment trusts FreedomLimitation on borrowing, short selling, and the use of derivatives May borrow Limitations on short selling, and the use of derivatives❝Typical investors◦Wealthy individuals ◦Pension funds◦Other hedge funds, creating …funds of hedge funds‟ –diversity in strategy and risk❝Returns and risk can vary a great deal among the different hedge fund strategies❝Market neutral (or relative value arbitrage) funds ◦Attempt to produce returns that have no or low correlation with e.g. equity markets◦Highly quantitative portfolio construction◦Concentrate on the relative value of individual shares, bonds, currencies ...◦Commonly apply arbitrage strategies-e.g. exploit mispricing between an underlying asset and a derivative instrument-Concentrate on the difference in performance of two given securities in homogenous universe. E.g. belief that BP will do better than X in oil firm; go long on BP and short on X.-Take position with convertible bonds❝Long/short funds-Generally invest in equity and bonds, taking directional bets on individual security or sector-Analyse individual companies and individual shares-Micro investors (look at individual/specific stocks)-Some may specialize in geographical sectors -Others may specialize in either small or large companies -E.g. 130/30-Timing is crucial-Stock-picking skill (short selling overpriced stocks and buying underpriced stocks)-Not automatically market neutral e.g. could havestrong positive correlation with equityGlobal (macro) asset funds-Look at stocks, bonds, currencies, and commodities from a global point of view -Macro-investors (look at broad themes) -Have positive exposure to the market-A fund might go long in sectors they believe will provide good returns, and short on countries they believe will have negative returns❝Event driven funds-Looks to exploit special situations -Take over bids-Merger, Corporate restructuring❝A group of individuals set up a limited liabilitypartnership, might have a limited life of around 10 years.❝Make good returns by buying public companies or neglected subsidiaries at good price and turning them into more attractive business❝They will gear up with debt that a public company would not want to risk.❝Normally be turned into non-quoted company❝They get involved in the business, bringing their own expertise and give managers big incentives to improve the business❝They seek cut costs, squeeze suppliers and sell unwanted assets, sell and lease back property ❝Large amount of leverage involved❝They take their profit in a variety of ways:-Refloat the company-Sell the company to someone else in the same business -Refinancing❝The private equity market was boosted in the early 2000s.❝IFSL shows that the global private equity investment amounted to $176.6bn in 2000, this increased to $317.6bn in 2007, then hit by the credit crisis andfell to $189bn.❝In the UK, well-known firms that are or have been owned by private equity groups: Boots, Iceland, Debenhams, New Look, Kwik-Fit❝E.g. In Dec. 2003, a group of private equity firms-Texas Pacific, CVC and Merrill Lynch Global Private Equity-bough Debenhams for £1.7bn, of which £600m was their own capital.❝In two refinancing in 2004 and 2005, they reconstructed the balance sheet with new borrowings and paid themselves back £1.3bn(twice of their original capital) in about 18 months. ❝They refloated Debenhams in May 2006.Explain the different types of investment institution. Identify and analyse the factors that will influence the investment strategy applied by each type of institution.。