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CFA Level I · CFA Level I Exam · Portfolio Management: An Overview

A portfolio manager discovers that a client's liquidity needs have increased sharply because of a planned property purchase. Which action is most appropriate within the portfolio management process?

The most appropriate action is to revisit the investment policy statement and then adjust the allocation. A change in liquidity needs is a change in client constraints, which the feedback step is meant to capture. Ignoring it or increasing equity risk would conflict with the new need.

  1. AContinue with the existing strategic asset allocation until the next scheduled review
  2. BIncrease the portfolio's equity allocation to raise expected return before the purchase
  3. CRevisit the investment policy statement and then adjust the asset allocation in the feedback stepCorrect

Explanation

Feedback involves monitoring the client's circumstances and updating the plan when constraints change. A liquidity change alters the IPS constraints, so the IPS is revised and the allocation adjusted. Waiting ignores the change, and adding equity raises risk and works against the liquidity need.

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