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If Gmam Carry Out Its Plans to Invest the Entirety of 13.2 Billion Contributions in Alpha Strategies

Autor:   •  December 5, 2017  •  Case Study  •  494 Words (2 Pages)  •  8 Views

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If GMAM carry out its plans to invest the entirety of 13.2 billion contributions in alpha strategies

The primary reason why GM should invest in this strategy is its exposure or rather they need to reduce the risk of exposure. The policy will absorb most of the risk in all possible sectors invested on by the company. The company was high on debts and had to find a way to deal with the situation without affecting its value. The company’s main idea is to reduce negative returns in the company during this hard year. If anything, the company would enjoy an array of diverse investments that would divide the risk. It is safe to say that this method was one way for the company to keep their eggs in separate baskets. Alpha strategies will soften the blow if it comes to experiencing another loss. The most important point to note is that the company was looking for a long-term solution that would come in handy if it came to it.

If other pension plans (public or private) follow GMs example

Not all pension plans would work well or even pull off the move that GM made. It is risky and highly volatile. There are too many variables that need to be covered in case things do not turn out as expected. The company may even go bankrupt as they try to salvage their pension plan. General Motors took debts upon debts and invested the whole package in their failing pension plan. The grand idea was to cover the underfunding and have some more left for future use. They managed to do all that although through financial constraints, but it still happened. GM is a company known for its ability to generate a large income (Viceira, Luis, and Helen 22).

This strategy could work with big companies that can absorb the risks and negative returns when things go south. The silver lining that GM had in their situation is that they made a good investment and had back up plans for every possible case scenario. The company has multiple markets that can absorb the risk in case one business does not meet the company’s expectation. The private and public sector have their system and plan that they follow to fulfil the requirement of their clients.

Every firm has a way that just works for them without having to interfere with the proceedings of the other. Whatever means works best for the business to fulfil their duties to the clients is the course that will be taken. This move pulled by GM worked for them since they had long invested in a practical pension plan that would divide risk long before the crisis happened. It would therefore not be wise for the other pension plans to follow this move as it may not work for them. This is because the total income was not enough to keep the company running should anything happen again (Viceira, Luis, and Helen 23).

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