HKSI Paper 12 The investment management process question: investment management process

HKSI Paper 12The investment management process

At its annual review, the Harbourfront Charitable Foundation tells its manager it must now pay HK$80 million for a hospital wing within two years, far earlier than planned. Which step of the investment management process should the manager revisit first?

A Performance attribution, to find which holdings caused the shortfall against the fund's benchmark
B Security selection, replacing the weakest holdings while keeping the current strategic mix
C Setting the objectives and constraints, as the liquidity need and time horizon have changed
D Tactical asset allocation, adding equities for a year to raise the HK$80 million faster

Show the answer and explanation

Answer: C. Setting the objectives and constraints, as the liquidity need and time horizon have changed

A large, near-term payout changes the foundation's constraints: it now has a liquidity need and a much shorter time horizon for part of the money. In the investment management process, the review stage feeds back to the first step, so the manager revisits the objectives and constraints, then the strategy and asset allocation that follow from them. Performance attribution explains past returns and does not address a new spending need. Swapping securities within an unchanged strategic mix leaves the mismatch in place. Adding equities to a two-year need raises the risk of a shortfall rather than reducing it. Source: Standard investment management process (planning, execution and feedback); investment policy statement practice (as at October 2026).

Common mistake

Jumping to the portfolio. A change in the client's circumstances goes back to the objectives first; everything else follows from them.

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Study note: The investment management process HKSI Paper 12 practice questions & mock exams

Related HKSI Paper 12 questions

Mr Chau, 35, earns a high, secure salary, has no debts and will not need his HK$3 million portfolio for 25 years. He says he would sell everything after a 10% fall. How should his manager set his risk objective?Tai Po General Insurance Ltd's investment fund backs property claims that can arise suddenly after a typhoon. Which consequence of this liquidity constraint is MOST appropriate for its investment strategy?Mrs Leung, 58, plans to retire at 60 and then draw an income from her portfolio for about 25 years. Which description of her investment time horizon is MOST accurate?

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Original study material mapped to the public HKSI Paper 12 syllabus. Unofficial, not endorsed by HKSI Institute or the SFC. Verify figures and rules against current guidance before relying on them.

HKSI Paper 12 The investment management process question: investment management process

HKSI Paper 12The investment management process

A Performance attribution, to find which holdings caused the shortfall against the fund's benchmark
B Security selection, replacing the weakest holdings while keeping the current strategic mix
C Setting the objectives and constraints, as the liquidity need and time horizon have changed
D Tactical asset allocation, adding equities for a year to raise the HK$80 million faster

Show the answer and explanation

Answer: C. Setting the objectives and constraints, as the liquidity need and time horizon have changed

Common mistake

Jumping to the portfolio. A change in the client's circumstances goes back to the objectives first; everything else follows from them.

Practise more Paper 12 The investment management process questions

Exam-style questions with worked answers, then full timed mocks. Free to start.

Start practising →

Build a daily practice habit — a few exam-style questions a day, with worked answers. Free to start.

Start practising →

Original study material mapped to the public HKSI Paper 12 syllabus. Unofficial, not endorsed by HKSI Institute or the SFC. Verify figures and rules against current guidance before relying on them.