Investment Manager Agreement: 10 Critical Issues for Fiduciary Manager Appointment Documentation
Investment Manager Agreement: 10 Critical Issues for Fiduciary Manager Appointment Documentation
04 Jul 2024
Like any relationship, it is important that things start off on the right foot. The same is true when appointing a Fiduciary Manager (FM). The appointment documents define the relationship between the trustees and the FM. Relationships are tested in times of crisis. This is where having a well written set of guidelines really comes into its own, in particular taking into account the lessons of the past and trying to anticipate future developments. For example, during the gilts liquidity crisis, we saw a number of examples of FMs and trustees scrabbling to change their legal documentation to deal with issues they were facing.
In this briefing Adam Rouledge, having reviewed a large number of fiduciary managers’ appointment documents, details 10 critical checks you can perform on your Investment Manager Agreement (IMA) before you sign on the dotted line. Download the full Fiduciary Manager Appointment Documentation report to learn more, or read about the highlights below.
What is an Investment Management Agreement?
An IMA is an agreement made between the trustee and the Fiduciary Manager which sets out all aspects of the relationship, including the responsibilities and liabilities of each. The documentation typically includes written details of investment objectives, liability hedge ratios, asset allocation restrictions, de-risking frameworks, trustees’ liabilities and fees.
Why might your existing IMA need to be reviewed?
Where an FM was appointed a number of years ago, you may well not have looked at the IMA since then. However, even if everything is working well, it may be time for a review.
From the trustee’s perspective, a well-detailed IMA can mean the difference between smooth sailing in all conditions, and taking on water in times of crisis. This is a lesson that many learned during the Autumn 2022 gilts crisis, an event which prompted many to review their existing contracts so that they better reflected their current strategies, investment beliefs and funding position.
Trustees should review the documentation when appointing an FM or when their investment beliefs, market conditions or the funding position change materially.
Investment Management Agreement checklist:
Whether you’re forming your IMA at the beginning of a new relationship with a Fiduciary Manager, or are looking to review your existing documentation following changes in your position, there are ten areas to consider in an IMA. These have been summarised below, but a full breakdown of what actions to take in each step can be found in our full report.
- Make sure the objectives are right
- Have a clearly defined target liability hedge ratio
- Ensure there are sufficient liquid assets to support the liability hedge
- Ensure your hedge ratio is prioritised appropriately
- Check that asset allocation restrictions are appropriate
- Confirm a clear policy on currency hedging
- De-risking triggers should be documented
- Pay attention to fees
- Make sure notice periods are appropriate
- Consider the extent of the trustees’ liability.
Fiduciary manager documentation needs to be independently reviewed as it shapes the relationship between trustees and the manager and is of critical importance when something unforeseen happens. XPS Group can review Investment Management Agreements from an expert investment perspective to make sure that the IMA serves the trustees’ interests.
For more information, contact our team or reach out to your existing XPS representative.