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.
Copyright The contents of this document are copyright. Other than under the Copyright Act 1968 (Cth), no part of it may be reproduced or distributed to a third party without FIIG’s prior written permission other than to the recipient’s accountants, tax advisors and lawyers for the purpose of the recipient obtaining advice prior to making any investment decision. FIIG asserts all of its intellectual property rights in relation to this document and reserves its rights to prosecute for breaches of those rights.
Disclaimer Certain statements contained in the information may be statements of future expectations and other forward-looking statements. These statements involve subjective judgement and analysis and may be based on third party sources and are subject to significant known and unknown uncertainties, risks and contingencies outside the control of the company which may cause actual results to vary materially from those expressed or implied by these forward looking statements. Forward-looking statements contained in the information regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. You should not place undue reliance on forward-looking statements, which speak only as of the date of this report. Opinions expressed are present opinions only and are subject to change without further notice.
No representation or warranty is given as to the accuracy or completeness of the information contained herein. There is no obligation to update, modify or amend the information or to otherwise notify the recipient if information, opinion, projection, forward-looking statement, forecast or estimate set forth herein, changes or subsequently becomes inaccurate.
FIIG shall not have any liability, contingent or otherwise, to any user of the information or to third parties, or any responsibility whatsoever, for the correctness, quality, accuracy, timeliness, pricing, reliability, performance or completeness of the information. In no event will FIIG be liable for any special, indirect, incidental or consequential damages which may be incurred or experienced on account of the user using information even if it has been advised of the possibility of such damages.
FIIG provides general financial product advice only. As a result, this document, and any information or advice, has been provided by FIIG without taking account of your objectives, financial situation and needs. Because of this, you should, before acting on any advice from FIIG, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If this document, or any advice, relates to the acquisition, or possible acquisition, of a particular financial product, you should obtain a product disclosure statement relating to the product and consider the statement before making any decision about whether to acquire the product. Neither FIIG, nor any of its directors, authorised representatives, employees, or agents, makes any representation or warranty as to the reliability, accuracy, or completeness, of this document or any advice. Nor do they accept any liability or responsibility arising in any way (including negligence) for errors in, or omissions from, this document or advice. Any reference to credit ratings of companies, entities or financial products must only be relied upon by a ‘wholesale client’ as that term is defined in section 761G of the Corporations Act 2001 (Cth). FIIG strongly recommends that you seek independent accounting, financial, taxation, and legal advice, tailored to your specific objectives, financial situation or needs, prior to making any investment decision. FIIG does not make a market in the securities or products that may be referred to in this document. A copy of FIIG’s current Financial Services Guide is available at www.fiig.com.au/fsg.
The FIIG research analyst certifies that any views expressed in this document accurately reflect their views about the companies and financial products referred to in this document and that their remuneration is not directly or indirectly related to the views of the research analyst. This document is not available for distribution outside Australia and New Zealand and may not be passed on to any third party without the prior written consent of FIIG. FIIG, its directors and employees and related parties may have an interest in the company and any securities issued by the company and earn fees or revenue in relation to dealing in those securities.