IPS constraints

CFA Level III
#1

What are important factors to look for while formulating IPS constraints?

I am specifically looking at Liquidity and Time horizon constraints.

Would liquidity incorporate things like annual expenses or only major liquidity events like debt/mortgage payment or university education? In the 2011 exam Q - 2C, they have mentioned “immediate” liquidity needs and “ongoing” liquidity needs.

As for time horizon, they (In the same questions), they have spoken of the length of the time horizon and the number of stages with a description.

Could anything more be expected? Or is this level of detail sufficient?

#2

Liquidity needs should be 2 fold:

  1. If there is a net withdrawl needed from the portfolio - i.e a shortfall, that is part of the yearly liquidity req (and an ongoing liquidity need)

  2. Any majoy liquidity events in the near term - such as paying education, home debt etc.

Your final answer should be the sum of 1&2

For TH - Your TH answer will always start with either Long term/Short term

You will then need to say whether this is single stage or multi-stage.

If the latter, this can be broken into stages resembling major payments that need to be made (or liquidity events) and pre retirement and post retirement.

#3

Awesome, just what i was looking for. Thanks!