Firms have to prove full Investment Management Agreement (IMA) Compliance
Investment Managers/Advisers are required to manage their clients’ portoflios and individual investments in a diligent and professional manner. Clients and regulators are increasingly requiring Investment Managers/Advisers to evidence their investment controls:
- Pre-Trade – ensuring proposed trades are assessed for their individual IMA compliance and overall portfolio impact
- Periodic – reassess individual assessments and the overall portfolio daily, weekly, monthly, etc.
Portfolios and individual investments should meet the investment objective(s) and follow the instructions stated in the IMA and related documents.
Before making any investment decision/recommendation managers and advisors are required to have performed due diligence.
When investing in funds the investment manager/advisor needs to conduct due diligence on the:
- Fund Manager: ensure the firm managing the fund has rigorous internal controls
- Fund’s Investment Team: assess the fund’s investment team to ensure there is continuity and key person cover
- Fund: evaluate the fund to ensure it meets the investment objectives
Due diligence should be conducted before making an investment decisions/recommendations and periodically thereafter.
In some instances, it might be necessary to perform an “extraordinary” due diligence review due to unforeseen events such as a change in ownership/management at the fund manager, changes in the investment team or unexpected performance in the fund.
GRC-Maestro evidences to your investors and regulators that you have strict internal control process for evaluating investment decisions/recommendations before they are made and periodically.
Investment Managers/Advisors need to have a controlled process for managing their client portfolios in accordance with each IMA:
- Take-On: ensure the firm managing the fund has rigorous internal controls
- Securities Analysis: how individual investments are assessed and selected, including restrictions/guidelines
- Portfolio Management: how the overall portfolio is managed, including restrictions/guidelines
- Communications: notifying the client of specified events, e.g. regulatory issues, senior departures, changes in process, etc.
- Others: covering a wide range of IMA clauses including: valuation methodology, authorised signatories, etc.
GRC-Maestro evidences to your investors and regulators that you can manage client accounts in full compliance with each IMA and fund prospectus.
Where an IMA specifies and investment process it is necessary to evidence this process. In some occasions the investment process is specified in an investment fund’s prospectus (the prospectus is a contract between the fund and it’s investors).
Examples of an investment process include:
- Security Selection: Investments are selected from the manager’s “top 50 buys”
- Periodic Portfolio Review: The Portfolio Manager (PM) will review the holdings monthly and rebalance as required
Where an IMA or fund prospectus specifies an investment process then the Investment Manager/Advisor has to evidence that they have followed the contractual process.
GRC-Maestro helps the Investment Manager/Advisor evidence full compliance with the Investment Analysis/Process specified in the IMA or fund prospectus.
IMAs usually contain a section on investment restrictions and guidelines. Most quantitative guidelines/restrictions can be monitored by specific systems such as CRD, ThinkFolio, Bloomberg POMS, Aladdin, etc. However, there are a range of investment restrictions/guidelines which can’t be automated due to a range of reasons, including:
- Judgement: terminology which requires judgement, such as “low risk”, “environmentally sensitive” or “high quality” have to be manually checked
- Missing Data: in some instances, the Investment Manager/Advisor doesn’t have the data specified by an IMA
- Complexity: some guidelines/restrictions are too complex for systems to calculate and have to be calculated in spreadsheets
GRC-Maestro evidences the manual checks that Investment Managers/Advisors use to ensure compliance with the IMA investment restrictions/guidelines.
Governance lies at the core of great IMA Compliance…
Clients and regulators require Investment Managers/Advisors to exercise…