Investment Policy Statement - Corporate

The complete Solution for Islamic Investments

September 21, 2020

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Corporate Investor Ultra large

• Employee Retirement Funds

• Banks

• Mutual Funds

• Insurance Companies

• Endowments

• NGOs

• Corporate Treasuries

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Employee Retirement Funds

• Defined Benefit Plans

– Gratuity
– Pension

• Defined Contribution Plans

– Provident Fund

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Defined Benefit Plan

Sponsor
• Contributions by the sponsor
• Liability for the sponsor
• Stated with a pre-defined criteria
• Sponsor manages the fund
• Sponsor bears the investment risk

Beneficiary
• Receives payment at eligibility
• No risk and return associated with investments

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Defined Benefit Plan

• Estimation of benefit liability

– No of employees
– Discount rate
– Average age of employee
– Average number of service remaining
– Average remuneration of employees
– Expected annual increase in remuneration

• Goal
– Generation of return sufficient to cover growing benefit liabilities

• Funded Status
– A surplus indicates over funded and healthy plan
– Under funded indicates excess liabilities. Contributions from sponsor required

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Defined Benefit Plan IPS

• Return: to counter inflation and generate enough amount to keep funded

status positive after input of regular sponsor funding
• Risk: determined by funded status and employee age
• Risk: Sponsors own financial stability and profitability

Constraints
• Time Horizon: Usually a going concern
• Liquidity: No of retired workers and number of workers retiring in the near
future
• Legal: governed by companies ordinance. Investment restrictions
• Unique circumstances: as there may be

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Defined Contribution Plan

• Sponsor funding
• Investment risk and return borne by the investor
• IPS same as individual investor

• Formation of trusts by sponsor to facilitate employees

• Pension Funds (VPS)

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Banks

• Increasing Deposits means additional investments

– Capital Adequacy Ratio (CAR)
– Asset to Deposit ratio (ADR)

• Investment of residual (after loan) deposits

– Highly liquid
– Low risk securities
– Can not afford to lose depositors money

• Generation of additional income

• Highly regulated

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Mutual Funds

• Pool of Investors with common risk and return profile

• Types of Funds

– Equity
– Asset Allocation
– Balanced
– Capital Protected
– Debt
– Money Market
– Sovereign
– ETF
– Commodities
– Hedge Funds

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Insurance Companies

• Life Insurance
– Long horizon
– Roll over liquidity
– Generation of inflation hedged return
– Age of insurance policy holders
– Highly regulated

• Non Life Insurance

– High uncertainty
– High liquidity requirement
– Short time duration
– Highly regulated

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Endowments

• Long term asset preservation

• Utilization of Income for the stated purpose
• Spending rules

• Inflation hedge
• Long time horizon
• Liquidity management through coupons, rentals and dividends

• Donations can enhance risk tolerance levels

• Tax exempted income

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NGO

• No Liabilities to meet

• Low risk tolerance

• Low return requirements

• High liquidity needs

• Placement of only short term excess money

• Long time horizon for major projects

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Corporate Treasuries

• Investment of Short term liquidity

• Low risk investments

• Return requirements to preserve capital and earn nominal income

• Better than idle cash strategy

• Risk mitigation and hedging against international trades

• Highly liquid investments

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