1) Size of II's tends to be much larger than private clients, allowing them to diversify into investments that are unavailable to private clients (such as physical RE)

2) Time horizon of II's tend to be longer than private clients since compared to the size of its portfolio, the liability it is aiming to meet is lower.

3) Institutional Investors are subject to additional legal and regulatory frameworks.

4) Institutional Investors tend to have a more sophisticated, formal governance structure. This may include investment committees.

5) II's have to deal with the Principal-Agent conflict more so than private clients do.

An SWF designed to help the government fill budget shortfalls.

1) The goal of the fund is to earn a return above inflation with a low probability of losses.

2) Aim to have a low correlation between asset return and source of government revenues.

3) High liquidity needs and short time horizon.

A SWF designed to help the local government earn a return on excess treasury deposits.

1) The aim is to earn more than the yield paid to investors on long-term sovereign debt.

2) Long-term horizon.

3) Moderate liquidity needs. Tend to hold liquid FI assets that can be sold quickly if needed.

A trading venue with low pre-trade transparency. Orders entered into these markets cannot be seen by participants until after the trade is executed. Helps slow info leakage but also increases the risk of execution. Useful for executing large trades in illiquid markets.

An HFT algo that seeks to trade close to market prices prevailing at the time the order is entered. Useful when managers are concerned about alpha decay, securities are relatively liquid, and order sizes are moderate (<15%).

Uses beginning of period portfolio assets to gauge return. The more frequent a portfolio trades, the larger the mismatch will be. Better used for more passive funds. Can be subject to window dressing and does not work well with illiquid secruites.

Advantages include being able to identify style more easily, and can be used effectively for attribution analysis.

Incorrectly rejecting the null hypothesis. In practice, this would be making a mistake to hire a manager that does not add value. The cost of making this error is lower if markets are believed to be efficent.

In mean reverting markets, this type of error occurs when firing a poor performer, only to have the performance improvements.

Failing to reject the null hypothesis when you should have. Failing to hire (or firing) a manager who adds skill. A PM that fires an employee for underperformance after only a short while may be committing this error type.

Advantages of IS are:

1) Calculates the exact costs of trade.

2) Can be decomposed into parts to identify where gains/losses came from.

Disadvantages of IS are:

1) Requires more precise data points to effectively calculate.

Advantages of VWAP:

1) Easier to compute

Disadvantages of VWAP:

1) Ignores Opportunity Costs.

PSAs monitor various securities in the market using real-time data to determine what to buy and sell for a profit.

EAs trade according to the rules specified by the manager to meet their objectives. Examples include trading according to a participation schedule or trying to blend in the overall activity of the market.

1) Specified in advance.

2) Appropriate

3) Measurable

4) Unambiguous (clearly defined weights)

5) Reflective of managers current investment opinions

6) BM is accountable

7) Investable

Price benchmarks that are known before the start of trading. These include:

1. Decision Price - The price at the time the PM made the trade.
2. Previous Close
3. Opening Price - Used by managers seeking long-term alpha oppoertunites.
4. Arrival Price - The price of the security when the order is sent to the market for execution.

Asset price benchmarks are based on prices during the trading period. These are used by managers who tend to trade passively over a day or funds that may be rebalancing. Common examples include:

1. Volume Weighted Average Price - The average price of all trades. This tends to be used when PMs want to participate in line with the rest of the market.
2. Time Weighted Average Price - The average price weighted by time period. This benchmark tends to remove outliers and is also useful during volatility trading days (when outliers may appear).

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This table represents the amount of time it would take to liquidate an investment without having a material impact on the overall market.

Determines the key drivers that generated the performance of the account. It explains how the return was achieved given the risks taken by the portfolio manager.

Determines whether the performance was affected primarily by investment decisions, by the overall market, or by chance. If performance is attributed to luck, we cannot expect the performance to continue into the future.

This benchmark is defined as the average price of all trades, weighted by volume, over a trading horizon. Managers use this when they want to participate with volume patterns over a day.

This benchmark is calculated by taking the equal-weighted price of all trades throughout the day. This benchmark is appropriate for managers who wish to remove the impact of outliers (i.e. large trades). This method is appropriate in volatile markets.

A benchmark used by profit-seeking managers attempting to exploit short-term alpha. If there is a difference in the price of a security and an investor's price target, there may be an opportunity to profit by buying or selling the security