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Old 07-27-2019, 10:55 AM
NchooseK NchooseK is offline
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Join Date: Nov 2012
Location: Philly area
College: Swarthmore College (BA Mathematics), Villanova University (MS Applied Stat)
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Default CDEF: Pls clarify "the management of the education fund" & and other ?s

I am not asking for a single answer or even hint to any Tasks. Either my copy of the assignment sheet has invisible ink, or FAP is just being FAP. I really appreciate responses--even just your best guesses to ANY of the following questions:

1) Disambiguation of legislation / legislative

The first paragraph of the Assignment Sheet includes "Over the next decade, the Cascadian Department of Education is taking steps to improve the country's public education... As part of this effort, newly enacted legislation calls for the set up of [CDEF]..."

Since the US Board of Ed can enact or pass legislation, I assume the Cascadian Board of Education (CDE) is enacting the legislation that calls for the set up of CDEF--a fund bearing its name.

Identifying the body making the legislation important because:

"... each year, the legislation will require [a] tax assessed against each employed person.
The amount of the tax will be fixed in advance; legislative action will be required to change the payroll tax assessment amount."

The point is it is a lot easier, quicker, familiar, serving all interests, etc. to go through CDE for tax change approval than it would be to go through, say, the alternative: 'the government' Recall the first sentence under the header About the CDEF (mid pg 1): "The CDEF will be separate from all other government funds." I interpret this--perhaps incorrectly--as the fund being the pet project of CDE/CDEF, not the Government Government (though the Gov did seed the trillion dollars).

I listed this item first, but it probably the least important. The most I could do is come up with an easy slam-dunk risk related to the management of the education fund's being unable to gain approval, timely approval or getting red taped. Also, with all the other mysterious players in this game, it would be nice to clearly chart them for identification purposes.

2) VERY IMPORTANT: Who/what the hell is the management of the education fund we at Fir Consulting are assisting in Task 1? Clearly we need know who these clowns are since the task concludes with: "Consider only risks that are relevant to the management of the education fund. Listing non-relevant risks will be penalized." Yikes!

"An independent body, the CDEF Investment Committee, will manage the fund according to the risk guidelines stated in the legislation and refined by the CDEF Board."

Rule out the CDEF Board, CDEF/CDE, the Cascadian government and us at Fir. I may have answered my own question by process of elimination, but why does FAP always give us assignments that have to pieced back together after being put through the shredder. SOA always preaches mae communication simple.

3a) New and old asset classes in Task 3: are they American or Cascadian? The modules and texts, for example, exclusively refer to and define T-Bills as American Treasuries. However, Kenya--and I'm sure others--also has T-Bills.
And despite Kenya's soaring economic growth backed by political stability-- impressive considering its surrounding neighbors--a Kenyan T-Bill is not an American T-Bill. Neither would be a Cascadian T-Bill or any investment--recall, Cascadia is a developing country. And then there are tax considerations, which I looked up at the IRS' site: apparently no capital gains or taxes on American investments for other sovereign countries who aren't conducting official business in the US.

3b) Proposed additional specialized asset management team. So if you researched real estate property, CDEF would need a large team of devoted experts with experience, massive data, connections, etc. and the more of it all the better your real estate property investments will perform. My research says such dedicated outside help is the biggest driver of success in real estate property investing. And the MORE, the BETTER. So the more you grow your real estate portfolio, the more experts, data, etc. you need. So I have two questions:

1) Can we assume the specialized asset management team are equipped to kick ass in real estate property? The instructions made no mention of any expertise in real estate property. If not, then we have to somewhere in Task 3 mention that a team of Real Estate Property all-stars, resources and dedicated talent/systems is required. And hiring such experts will get more expensive if you either wish to perform better and or wish to invest more heavily--and especially diversely--in real property. I mean you aren't just buying a house and renting a spare bedroom.

2) I forget what I was asking here.

Thanks a ton!
Exams: P | FM | C | MFE | LTAM | SRM Credit | PA

VEE: Statistics | Finance | Economics

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Old 07-27-2019, 11:34 AM
JRemy511 JRemy511 is offline
Join Date: Oct 2011
College: University of Rochester
Posts: 86

My thoughts (as I'm working through this right now). First, this is classic FAP being FAP, there are a ton of gaps that they either want you to fill in and justify or they don't think are important, over thinking it will bog you down too much.

1. I take it as the CDE Board is a group that comes up with legislation that goes through the government, including setting the tax rate. The assignment comes across as advising them since they are the only ones that can really do anything to/for the CDEF. I also think that there can be a more general way of including the risk of the work it takes to change the tax rate that falls into management of the fund.

2. I read managing the fund as anything that involves making sure it's getting funding and the ability to pay it's bills. There are a ton of risks that could impact the CDEF that do not relate to the management of it and I've excluded those.

3a. Cascaida is a small north american country with a completely fictitious tax system. Referencing possible tax implications is a good thought, but going so far as to nail down exactly what they are in a fictional country might be going into too much depth. For my work I always assume parallel behavior to the system I'm most familiar with (US) but I'm not an expert on Cascadia law so I always advise further review/research is necessary.

3B. Sounds like you're discussing the risk/reward of real estate investment
1). Sounds like you're discussing the risk/reward of using a specialized asset management team.

[if my answers seem short or glib, it's party because I'm not exactly certain how deep I can go into answering while also working on the same assignment]
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Old 07-27-2019, 12:07 PM
NchooseK NchooseK is offline
SOA Non-Actuary
Join Date: Nov 2012
Location: Philly area
College: Swarthmore College (BA Mathematics), Villanova University (MS Applied Stat)
Posts: 353

Short? No.
Glib? No.
Helpful? Insightful? Yes!

I really appreciate your perspective.

Responses to your responses:

Preamble: Spot on.

1) A cogent resolution. Now I'm trying to guess your general approach re tax rates. It'll keep me busy.

And your response to #2 got me thinking about the investment objectives again:
Pay obligations annually. Promised to the students and owed to the taxpayer.
Pay financial obligations at any given time.
Maximize return, avoid risks of undue loss
Manage fund in the best interest of current/future students and the taxpayer.

So any risks that jeopardize those, I assume, are what we want. Better yet, any risks that jeopardizes what drives those risks. Always aiming for the highest level of abstraction, though it sometimes conflicts with tailoring the RCD entries to business problem or other problem being addressed.

3) Yes, these items do tie into Task 3 part b. However, I would want to at least mention in part a that the specialist team(s) are an expense (liability) item. More materially (or not--I haven't decided) the real property experts should be paid in some in some proportional fashion to the amount of real property investing we are doing. I'll at least mention it, but may conclude complexity--even just a little--isn't worth it unless it is material. I gotta get the word material into this paper at least 4 times

Thank you very much!

Feel free to write me if you want to pass more thoughts along, for either of our benefits.
Exams: P | FM | C | MFE | LTAM | SRM Credit | PA

VEE: Statistics | Finance | Economics

FAP: 1 | 2 | 3 | 4 | IA | 6 | 7 | FA

Conferences: APC
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