Describe financial intermediation
-involves the movement of funds between those who supply capital and those who use it
What are the primary sources of capital?
-depositors, lenders, policy holders, and investors
What are the 6 major factors that encouraged the growth of other types of financial intermediaries (other than banks and insurance companies)?
- Demographic influences
- Proliferation and growth of pension plans
- Empowerment of individual investors via technology and communications
- Innovation
- Declining costs
- Capital markets liberalization and deregulation
What are the two main factors that drove the interest in derivatives by the financial intermediaries?
- As regulatory environments become more concentrated with the risks they assume, financial intermediaries have used derivatives in their management strategies and processes
- They use financial derivatives in the creation and management of customized financial products for both their individual and institutional investors
What are the 7 types of institutional investors?
- pension plans
- mutual funds
- insurance companies
- endowments
- charitable foundations
- family trusts/estates
- corporate treasuries
Insuramce company assets are often managed ________. This preference has led insurers to purchase ______________.
- internally
- external asset management firms
What are some of the key facts that have contributed to the growth of mutual funds in the past few decades?
- diversification geographically
- diversification of investor base beyond the traditional individual investor
- pursuit of wholesale
What are two similarities between endowment funds and retirement funds?
- long term in nature
- not taxable
What are the two regulators that oversee the majority of firms and individuals involved in the creation, management, sale and distribution of financial products and services in Canada?
- OSFI
- provincial and territorial securities regulators
What is the OSFI?
- independent agency of the federal gov that reports to the federal minister of finance
- supports the government’s objective of “contributing to public confidence in the Canadian financial system”
What is the OSC’s mandate?
-to provide protection to investors from unfair, improper, or fraudulent practices and to foster fair and efficient capital markets and confidence in capital markets
Describe the organizational structure of an institutional investment fund’s governance
- board of trustees
- investment committee
- investment consultant
- investment manager
What is the purpose of an IPS?
to document the investment management process by
- identifying key roles and responsibilities related to the ongoing mgmt of a funds assets and
- setting forth an investment structure for a fund’s assets, which included all of its asset classes and acceptable ranges that in aggregate, are expected to produce a sufficient investment return over the long term while prudently managing risk
