Procedure 1 is incorrect – the process of identifying desired and required returns should take place concurrently – ultimately, the investment policy statement must present a return objective that is attainable within the risk constraints of the portfolio. Procedure 2 is also incorrect – the investment manager should address both required and desired returns in the IPS, although when balancing the return objective with risk tolerance, the investor may have to dismiss less important objectives and focus on required return, putting less emphasis on desired returns. |
