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Not for Profit Investors - Are you (really) managing your investment manager?

by Andrew Frankling | Aug 05, 2014

This is the third article in a series about investing issues for charities and not for profits. For earlier articles ( "New WIRE series: Investing issues for Not for Profits and Charities" click here and "Investment lessons from Donald Rumsfeld" click here.  Much of this series will also be generally applicable to most investors

“What gets measured gets done” is a truth that has been attributed to a number of famous people, including the business authors Peter Drucker and Tom Peters.

Whether it’s business or, say, life coaching, there are many places where measurement drives awareness which leads to results.

One of these areas is investment management, where explicit measures are vital for developing well designed mandates with your investment manager, including your fixed income manager.

In the last article I spoke about the need to develop an effective investment policy statement in the light of different kinds of risks.

A mandate is all about implementing the investment policy statement via an investment manager for a specific part of your investment portfolio.

There are good reasons to develop effective mandates, including:

  • To reduce the possibility your manager’s expectations diverge from your own
  • To allow for the creation of more effective reporting
  • As an education tool

Somewhat surprisingly, there don’t seem to be any current Australian industry standard templates to use as a guide when drafting mandates so here are some items that should be included in a mandate following discussion with the manager:

  • Well defined portfolio objectives, often defined in qualitative rather than quantitative terms
  • Appropriate and measurable benchmarks
  • Approved investments and/or asset classes
  • Access to income and/or redemption proceeds (“liquidity”) which meets your liabilities
  • The sensitivity of the portfolio to changes in interest rates (“duration”)
  • Whether you want your portfolio exposed to securities lending and derivatives
  • Appropriate portfolio reporting and reviews

For fixed income managers such as FIIG, you could also consider minimum credit ratings.

Well-designed mandates protect clients.  Are yours’ still fit for purpose?

Please contact our NFP team Justin McFarland, Tim Smith or Casper Wolski on (02) 9697 8721 for more information.

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