Discretionary or nondiscretionay company, anybody, relating, corporate, foundation

cfa10yrplan

Can anybody have a look at two cases relating to discretionary/nondiscretionary portfolios on page 298-299 in curriculum Vol 6? One is in the third paragraph on page 298, “a corporate client might prohibit the sale of company stock, or a foundation might similarly ban the sale of sentimental holdings, securities issued by the company in which its founder made a fortune....none of these constraints automatically renders a portfolio nondiscretionary.”

While the other case is in the highlighted column on page 299, “A client could insist that manager retain specific holdings that might or might not otherwise be held in a portfolio…the outcome would not reflect the results of the manager's actual discretionary investment management” Seems that the portfolio is rendered nondiscretionary.

In both cases, specific holdings are retained and the sale of them are banned. Why the constraints in the former case will NOT render the portfolio nondiscretionary, while nondiscretionary in the later case? Thanks a lot!



Edited 1 time(s). Last edit at Monday, April 18, 2011 at 06:43PM by mrimer.

dyga

Ultimately, the issue here is that anytime a portfolio manager is constrained from implementing the ideal strategy they would like to use due to client restrictions, the portfolio can be considered non-discretionary. The actual definition of what constitutes "discretionary" is defined on a firm-wide basis (so it could vary from firm to firm).

I think the key in the first one is "none of these constraints AUTOMATICALLY renders a portfolio non-discretionary" - just because there are constraints on the portfolio doesn't mean that the portfolio manager can't implement the investment strategy that he/she wants.