Download - Investment Management “Hot” Topics What would I expect to find in the way of Best Practices?
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InvestmentManagement “Hot” TopicsWhat would I expect to find in
the way of Best Practices?
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Best Practices for Investment Managers
STEWARDS COMMITTEE
MEMBERS TRUSTEES BOARDS MONITORING CHOOSING
MANAGERS SELECTING BUYING SELLING MANAGING
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EVOLUTION OF THE CONCEPT OF PRUDENCE Harvard v. Amory (1830)
Prudent Man Rule• Common Law
ERISA (1974) Prudent Expert Rule
• Federal Law Uniform Prudent Investor Act (1994)
Private Trusts• State Law
Uniform Management of Institutional Funds Act (2002) Charitable Trusts
• State Law
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Definition of Prudence
The fundamental principle for professional money management, stated by Judge Samuel Putnum in 1830
"Those with responsibility to invest money for others should act with prudence, discretion, intelligence, and regard for the safety of capital as well as income."
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INDUSTRY BEST PRACTICE www.cfainstitute.org
Trade Management Guidelines Soft Dollar Standards Research Objectivity Standards Global Investment Performance
Standards Asset Manager Code of Conduct
www.nccusl.org UPIA (1994) UMIFA (2002)
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INDUSTRY BEST PRACTICES www.sia.com
Compensation Practices Firm Management Internal Firm Policies Relationships with Regulators Role of Compliance Professionals Investor Confirmations Registered Rep Supervision Investor Complaints Soft Dollars Sales Supervision
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Best Practices for Investment Managers Key decision-makers demonstrate
expertise in their field, and there is a clear succession plan in place. Qualitative Evaluation of Expertise Formal Succession Plan Compensation Practices Firm Management
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Best Practices for Investment Managers There are clear lines of authority
and accountability, and the mission, operations, and resources operate in a coherent manner. Strategic Plan Tactical Plan IT Plan Firm Management
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Best Practices for Investment Managers There are effective and
appropriate external management controls. Audits Examinations Compliance Program Board & Committee Oversight
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Best Practices for Investment Managers Mutual Funds, Hedge Funds &
Annuities associated with the organization have suitable board governance. Performance Suitability Expenses Standards for Selection & Retention Conflict & Self-Dealing Addressed
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Best Practices for Investment Managers Remuneration of the Investment
Manager/s and compensation of key decision-makers are aligned with client interests. Performance Based Long-term Focus Fully-disclosed Compensation Practices
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Best Practices for Investment Managers The working atmosphere is conducive to
attract, retain, and motivate key employees. Turnover Decision-making Process Creativity Opportunity Compensation Practices Formal Evaluation Process Internal Firm Policies
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Best Practices for Investment Managers There is a formal structure which
supports effective compliance. Corporate Culture/Attitude Compliance Program Compliance Officer Control Self-assessments Role of Compliance Professionals
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Best Practices for Investment Managers The organization provides financial
transparency that demonstrates there is capital and profitability to sustain operations and adequate disclosures are made. Financials Form ADV Fee Schedules Agreements Disclosure Documents
• Proxy Voting, Soft-dollar, Pricing & Best Execution
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Best Practices for Investment Managers The organization is committed to
firm-wide innovation and has established a competitive position of strength. Creativity Decision-making Best Practices Systems Personnel Development
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Best Practices for Investment Managers There is an effective process for
allocating and managing both internal and external resources and vendors. Soft-dollar Trade Allocations Research Objectivity
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Best Practices for Investment Managers The organization has a diverse client
base, and the capacity to service the same.
Concentrations by: Fees Asset Class Security Client Product
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Best Practices for Investment Managers The organization is properly
managing the growth/decline of assets under management. Growth/Decline Rates:
• Fees• Assets• Accounts
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Best Practices for Investment Managers The investment system is clearly
defined and consistently adds value. Investment Story Process Policies, Procedures & Controls Exception Identification, Tracking &
Resolution
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Best Practices for Investment Managers The investment research process is
defined, focused, and documented. Soft-dollar Budget Benefit Derived Off-list Securities Research Objectivity
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Best Practices for Investment Managers The portfolio management process
for each distinct strategy is clearly defined, focused, and documented. Benchmarks Asset Allocation Deviations from Policy Periodic Reviews Risk & Return Differentiation
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Best Practices for Investment Managers The trade and execution process is
defined, focused, and documented. Soft-dollars Best Execution Trade Allocation
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Best Practices for Investment Managers The organization has responsible and
ethical marketing and sales practices. AIMR/CFA Compliant (Best Practices)
• Performance Reporting (GIPS)o Returno Risko Benchmarkso Time-frameo Classification
• Trade Management• Research Objectivity• Proxy Voting
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Best Practices for Investment Managers There is a defined process for the
attribution and reporting of costs, performance, and risk. Performance Measurement
• Risk• Return• Benchmark
Performance Attribution• Classifications• Cause & Effect
Fees & Expenses Disclosed
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Best Practices for Investment Managers The investment system and
portfolio management processes are monitored and are consistent with assigned mandates. Performance Dispersion Off-list Securities Concentrations Exceptions to Min/Max Allocations
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Best Practices for Investment Managers There is an effective risk-
management process to evaluate both the organization’s business and investment risk. Control Self-assessments Risk Management Plan Role of Compliance Professionals
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Best Practices for Investment Managers Control procedures are in place to
periodically review policies for Best Execution, Soft Dollars, Pricing, and Proxy Voting.
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Best Practices for Investment Managers There is an effective process for
identifying, managing, and disclosing conflicts of interest. Broker/Dealer Investment Managers Mutual Funds Insider Trading Front-running Pricing Asset Manager Code of Conduct
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Best Practices for Investment Managers There is a process to periodically
review the organization’s effectiveness in meeting its fiduciary responsibilities. Annual Reviews Investment Policy Statements Investment Objectives Risk & Return Levels Vendor Selection & Usage
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BEST PRACTICES FOR INVESTMENT MANAGERS
27 Practices
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ANALYZE Practice No. 1.1 Investments are managed in
accordance with applicable laws, trust documents, and written investment policy statements
Practice No. 1.2 Fiduciaries are aware of their duties and responsibilities
Practice No. 1.3 Fiduciaries and parties in interest are not involved in self-dealing
Practice No. 1.4 Service agreements and contracts are in writing, and do not contain provisions that conflict with fiduciary standards of care
Practice No. 1.5 There is documentation to show timing and distribution of cash flows, and the payment of liabilities
Practice No. 1.6 Assets are within the jurisdiction of U.S. courts, and are protected from theft and embezzlement
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DIVERSIFY Practice No. 2.1 A risk level has been identified Practice No. 2.2 An expected, modeled return to meet
investment objectives has been identified Practice No. 2.3 An investment time horizon has been
identified Practice No. 2.4 Selected asset classes are consistent
with the identified risk, return, and time horizon Practice No. 2.5 The number of asset classes is
consistent with portfolio size
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FORMALIZE Practice No. 3.1 There is detail to implement a
specific investment strategy Practice No. 3.2 The investment policy
statement defines the duties and responsibilities of all parties involved
Practice No. 3.3 The investment policy statement defines diversification and rebalancing guidelines
Practice No. 3.4 The investment policy statement defines due diligence criteria for selecting investment options
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FORMALIZE (continued)
Practice No. 3.5 The investment policy statement defines monitoring criteria for investment options and service vendors
Practice No. 3.6 Investment policy statement defines procedures for controlling and accounting for investment expenses
Practice No. 3.7 Investment policy statement defines appropriately structured, socially responsible investment strategies
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IMPLEMENT Practice No. 4.1 The investment strategy is
implemented in compliance with the required level of prudence
Practice No. 4.2 Fiduciary is following applicable “Safe Harbor” provisions (when elected)
Practice No. 4.3 Investment vehicles are appropriate for the portfolio size
Practice No. 4.4 A due diligence process is followed in selecting service providers, including the custodian
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MONITOR Practice No. 5.1 Periodic performance reports compare the
performance of money managers against appropriate index, peer group, and IPS objectives
Practice No. 5.2 Periodic reviews are made of qualitative and/or organizational changes to money managers
Practice No. 5.3 Control procedures are in place to periodically review a money manager’s policies for best execution, soft dollars, and proxy voting
Practice No. 5.4 Fees for investment management are consistent with agreements and with the law
Practice No. 5.5 “Finders fees,” 12b-1 fees, or other forms of compensation that have been paid for asset placement are appropriately applied, utilized, and documented