Home  >  115 CFA  > Portfolio Management - Reading 51 - 2. Investment Clients

2. Investment Clients

b. describe types of investors and distinctive characteristics and needs of each;

## c. describe defined contribution and defined benefit pension plans;

What is the difference between individual and institutional investors? - Individual investors have individual goals (risk/return, growth/income) - Institutional investors invest on behalf of others

What is a pension plan? A pension plan is a fund that provides retirement income to employees.

What is a defined contribution plan? The employer agrees to contribute a certain sum each period based on a formula. Only the employer’s contribution is defined; no promise is made regarding the ultimate benefits paid out to the employee.

What is a defined benefit plan? A defined benefit plan defines the benefits that the employee will receive at the time of retirement.

What is an endowment or foundation? An endowment or a foundation is an investment fund set up by an institution in which regular withdrawals from the invested capital are used for ongoing operations.

What is the investment philosophy of a bank? A bank typically has a very short investment horizon and low risk tolerance.

What are the investment needs for insurance companies? Low risk, high liquidity.

What are the two types of sovereign wealth funds? 1. Savings funds 2. Stabilization funds - created to reduce the volatility of government revenues, to counter the boom-bust cycles’ adverse effect on government spending and the national economy