BAFI6010 · Advanced Investment Management
The Complete Exam Bible · S2 2026Advanced Investment Management
BAFI 6010 Advanced Investment Management is a postgraduate funds-management course that walks you through the full investment management process the way a professional manager runs it — specifying an investor's return and risk objectives, optimising a strategic asset allocation with Modern Portfolio Theory and risk budgeting, understanding traditional assets across the economic cycle, choosing between active and passive strategies, and judging managers with performance attribution and mutual-fund analysis. It is grounded in Lustig's Investment Assets Handbook and the classic theory papers (Markowitz, Sharpe, Berk, Black-Litterman), and applies them to a real endowment portfolio using Excel, LSEG and Morningstar data. The assessment rewards two things above all: the ability to compute the core measures from memory (closed-book, no formula sheet) — CAPM/SML, Sharpe/Treynor/information ratios, marginal contribution to risk, duration, and Brinson attribution — and applied judgement, since roughly 80% of the final is discussion of when a method works, what its assumptions break, and which manager or structure to recommend. Marks are lost far more often to weak conceptual reasoning than to arithmetic, so mastering the "why" behind each formula is what separates a pass from a distinction.
What BAFI 6010 covers
The ten chapters trace one funds-management workflow end to end — from setting an investor's return and risk objectives, to building and risk-budgeting a strategic asset allocation, to picking active-versus-passive managers, and finally judging them with performance attribution, mutual-fund due diligence and the rules that govern investment companies.
How BAFI 6010 is assessed
| Component | Weight | Format |
|---|---|---|
| Mid-Semester Test | 30% | In-person supervised, closed-book, 1.5 hrs; 5 short-answer questions each with sub-parts (calculation + theoretical); covers Topics 1-5; no formula sheet |
| Group Assignment | 30% | Groups of max 4; Belleview University endowment / Centrium Asset Management case; Excel (4 tabs) + report over 6 sections (SAA creation, out-of-sample testing, fund/manager selection, active bond fund) using LSEG + Morningstar |
| Final Examination | 40% | In-person; 7 questions; 150 minutes; 20% calculations / 80% applied concepts & discussion; all topics except Topic 6 |
Endowment total-return objective and payout policy
- +1Compute the current spending / payout rate as payout divided by assets: 12 / 240 = 5.0%.
- +1Assemble the required real return additively — spending rate + real growth target + management fee - real donations: 5.0% + 2.5% + 1.0% - 1.5% = 7.0% real (add expected inflation to convert to a nominal target).
- +1State the objective in words: earn a long-run total return of at least 7.0% above inflation, net of fees, enough to fund a 5% payout while preserving real capital in perpetuity.
- +1Classify the objective as absolute — it is tied to the Trust's own spending needs and real capital preservation, not to beating a market benchmark.
- +1Specify a risk objective as a downside / shortfall constraint, e.g. keep the probability of a real capital decline over any rolling 3-year window below 10%, consistent with a growth-biased but not aggressive allocation.
- +1Explain the smoothing: a trailing-average payout decouples spending from any single bad year, dampening distribution volatility and lowering the chance a market drawdown forces a spending cut — directly supporting the capital-preservation risk objective.
Key terms
- Strategic Asset Allocation (SAA)
- The long-run policy mix of asset classes chosen to meet the investor's return and risk objectives; the anchor the whole portfolio is built and rebalanced around, with tactical ranges layered on top.
- Efficient frontier
- The set of portfolios offering the highest expected return for each level of risk (or lowest risk for each return), derived from Markowitz mean-variance optimisation; portfolios below it are inferior.
- CAPM and the Security Market Line (SML)
- The model E(r) = r_f + beta x (E(r_m) - r_f) pricing an asset's expected return off its systematic risk; assets plotting above the SML are underpriced (positive alpha), below are overpriced.
- Beta
- An asset's sensitivity to market-wide (systematic) risk, Cov(i, market) / Var(market); the only risk CAPM rewards, since firm-specific risk can be diversified away.
- Sharpe / Treynor / Information ratio
- Reward-per-risk measures: Sharpe uses total risk (sigma), Treynor uses systematic risk (beta), and the information ratio uses active risk (alpha divided by tracking error) — the key gauge of active skill.
- Marginal Contribution to Risk (MCR)
- Each asset's share of total portfolio risk, w_i x beta_i x sigma_p, where beta_i is the asset's beta against the portfolio; the contributions sum to total risk, so proportions sum to 100%.
- Risk parity
- A weighting scheme where every asset contributes equal marginal risk, so higher-volatility assets receive smaller dollar weights — the opposite of capitalisation weighting.
- Tracking error
- The standard deviation of the return difference between a fund and its benchmark (or the residual of a single-index regression); passive managers minimise it, active managers deliberately take it on.
- Macaulay and modified duration
- Macaulay duration is the present-value-weighted average time to a bond's cash flows; modified duration = Macaulay / (1 + y) gives the approximate percentage price change per unit yield move, refined by convexity.
- Jensen's alpha
- The risk-adjusted active return — actual return minus the CAPM-required return; its statistical significance (p-value from a t-test), not its raw size, is what signals repeatable manager skill.
- Brinson attribution
- A bottom-up decomposition of outperformance into an allocation (market-timing) effect and a selection (stock-picking) effect, plus an interaction term (often folded into selection), which together sum to the total value added versus the benchmark.
- Open-end vs closed-end fund
- Open-end funds issue and redeem shares on demand at NAV and are largely all-equity (low leverage); closed-end funds (including REITs) have fixed shares traded on an exchange at a premium or discount to NAV and may use leverage.
BAFI 6010 FAQ
How is BAFI 6010 assessed?
Three components: a mid-semester test worth 30% (in-person, closed-book, 1.5 hours, five short-answer questions with sub-parts covering Topics 1-5, no formula sheet), a group assignment worth 30% (an endowment / asset-management case built in Excel across four tabs plus a report, using LSEG and Morningstar data), and a final examination worth 40%.
Is there a final exam?
Yes. The final is in-person and worth 40% — 7 questions in 150 minutes, split roughly 20% calculation and 80% applied concepts and discussion. It covers all topics except the Testing Portfolios topic, which is assessed through the group assignment instead.
Is the exam open- or closed-book?
Closed-book. The mid-semester test explicitly provides no formula sheet, so you must recall every formula from memory, and the final follows the same supervised, in-person convention.
What is the hardest part of the course?
Most students find the shift from dollar allocation to risk allocation the hardest — computing marginal contribution to risk with betas against the portfolio, handling negative covariances in a risk-parity build, and reasoning through bullet-versus-barbell convexity. The other common trap is separating raw outperformance from statistically significant alpha in performance attribution.
How should I prepare?
Practise the core calculations until they are automatic (CAPM/SML, Sharpe/Treynor/information ratios, duration and convexity, marginal contribution to risk, Brinson allocation-versus-selection), and rehearse the discussion answers — assumptions, criticisms and 'which would you recommend' — since about 80% of the final rewards applied reasoning, not arithmetic. Work timed past-style questions closed-book, especially through the revision week.
Do I need to memorise formulae?
Yes. Because the assessments are closed-book with no formula sheet, you must reproduce every formula — portfolio variance, CAPM, the performance ratios, duration, marginal contribution to risk and the Brinson effects — as well as apply them correctly.
Is this page official or affiliated with the University of Adelaide?
No. This is an independent AskSia study resource created to help students revise. It is not produced, endorsed by, or affiliated with the University of Adelaide, and it is not a substitute for the official course materials and Canvas announcements.
How to study for the exam
Treat the course as one continuous funds-management workflow rather than ten isolated topics: start every revision session by placing the concept in the arc (objectives, then allocation, then risk budgeting, then strategy, then attribution and structure), because the exam rewards students who connect the stages. Split your effort deliberately — drill the calculation-heavy chapters (MPT/CAPM, risk budgeting, duration, attribution) until you can reproduce each formula and worked example closed-book from a blank page, since there is no formula sheet, and separately rehearse the discussion chapters (active-vs-passive theory, Berk and Sharpe, fund structure and regulation) as short-answer plans that name assumptions, criticisms and a clear recommendation. Practise past-style questions under timed, closed-book conditions during the revision week, checking your work with the built-in reconciliations (risk contributions sum to 100%; allocation + selection = total outperformance), and always finish a numerical answer with one sentence of interpretation — the applied judgement is where most of the marks sit.
