Please enable JavaScript.
Coggle requires JavaScript to display documents.
The relationship between he fund manager and the fund - Coggle Diagram
The relationship between he fund manager and the fund
Offshore investment funds are the responsibility of their board of directors and those boards will have all of the responsibility for managing the assets of the fund in accordance with the Offering Doc, law and regulation
Fund boards are often made up of specialists in various areas, including corporate governance, accounting and administration and will frequently have someone recognised in a relevant field appointed as chairman
This means that the blend of the board's skills and experience is appropriate for the fund but may not necessarily allow for successful growth of the investment portoflio
While the board possess the skills to manage offshore funds in accordance with law and regulation and will have a sufficient level of knowledge, collectively, to understand the investment parameters, the fund itself does not have the experience or the staff to perform its own fund management and so is not adequately resourced to manage the fund's investments
The funds board will contract with the fund manager to provide those skills whether as investment manager or adviser and adequate resourcing to support the investment objectives and in so doing will grant varying levels of discretion and powers in respect of investment decision making
Not only does the fund manager have the resourcing and the skill to manage the fund's investments but it will also be the party most likely to be able to pursue investment opportunities and also to generate them because the fund manager will be part of a network that the fund itself is not
Some offshore jurisdictions have tried to recognise and manage the dichotomy through the naming conventions of various parties to the fund, most frequently appointing the principals in charge of the fund as the manager in some guise although the same issues arise, this manager does not employ staff of its own and so does not have the resources to identify and manage fund investments
The board will need to engage with a third party to provide the management services, invariably that investment manager or advisor appointed will bet eh party the outside world recognises as the fund manager
In terms of the fund itself, the fund managers obligations lie within the from of contract it has in place with the fund but it is not responsible for the fund itself
Responsibility for the fund lies with those responsible for its management ie the directors, trustee or GP who are directly responsible in law and in regulatory terms
The fund may select its own investments but this selection will be limited in scope to the investment objectives set by the fund manager at the outset and the investment opportunities the fund manager is able to source
The IMA
The form of contract between the fund and its fund manager
Governs the relationship between the fund and fund manager
It is a key document and will always be identified as a material contract and its key terms discosed
Key terms will
Establish the key tasks the manager must perform
Identifying and researching suitable investment opporutnities
Conducting DD on investment opportunitites
Seeking opportunities for improvement or disposal of investments
Establish the extent of the managers authority
May be granted a discretionary mandate whether on an absolute basiss or within set boundaries (eg acquisitions up to a certain amount or percentage of AUM), so manager has absolute power over investment choices subject only to the monitoring and oversight of the governing body
Diposal of assets, requiring the manager to present detailed recommendations in order to authorise a transaction
The manager's authority to manage the assets and to what extent, the funds governing body will retain certain power to intervene in their management
Establish how much the manager will be paid
Management fees: fees for service it provides, typically % of NAV or AUM at set points in time. Tend to be 1-2% pa against NAV but will depend upon the relative bargaining power of both the manager and investors the fund is targeting
Performance fees: fee the manager will receive once the fund's performance exceeds a set benchmark or other crtieria
Any provision for clawback: investors and those charged with their protection i.e regulators are keen to ensure managers are only being enriched by fees they are entitled to take. Eg performance fees are calculated on a periodic basis and claimed by the manager as soon as the end of the first period during which the set indicator has been exceed although in the next period the fund underperforms so drastically that previous performance is wiped out. Many are keen to see that the manager remains responsible and so the fund may recoup some of the performance fee paid to the manager