Study suggests an alternative model for mandate terms between asset owners and asset managers
Boston, MA, December 5, 2017– FCLTGlobal, a not-for-profit organization that advocates for a longer-term focus in business and investment decision-making, has released its newest publication which presents a long-term model for drafting investment management contracts between asset owners and managers.
The white paper, Institutional Investment Mandates: Anchors for Long-term Performance, discusses the status quo of such mandates and how the terms and conditions included can affect, either positively or negatively, long-term behaviors and investment partnerships. The research includes a "Top Ten" list of key components of long-term oriented mandates, and an exploration of fees and incentives, disclosures between owners and managers, transparent plans for evaluations, and strategic benchmarks.
“The investment mandate is the foundation for every working relationship between asset owners and managers, so ensuring that it reflects a long-term outlook is absolutely critical to everyone involved”, said FCLTGlobal CEO Sarah Williamson. “Our report outlines how to do so in practical, applicable terms; anchoring mandates in this way benefits the entire investment value chain.”
FCLTGlobal convened a series of working groups in the months leading up to the release of the report, bringing together some of the world’s leading asset owners and asset managers to contribute to the project. These representatives, drawn from FCLTGlobal's member base, discussed what's currently working, what needs to change, and how to tailor investment mandates in a way that positions them for long-term success.
"Investment mandates have the power to be the anchor that aligns behavior and objectives, focusing asset managers on long-term value creation," said Mark Machin, President and CEO of the Canada Pension Plan Investment Board, a founding member of FCLTGlobal. "At the outset of any new mandate, asset owners must deliberately work with their asset managers to clearly articulate the terms of investment contracts, making sure to align goals, incentives and key long-term performance indicators."
The report concludes with the presentation of steps that may create long-term mandates. The first outlines nine critical contract provisions to evaluate at the outset of any investment agreement. The second includes key performance indicators which may produce a more accurate indicator of progress toward achieving long-term goals.
“There is overwhelming evidence that long-term components in partnership agreements between asset owners and asset managers add value not just for clients, but for society as a whole,” said Lars Dijkstra, CIO of Kempen Capital Management and a participant of FCLTGlobal’s working group. “Incorporating a more active approach to ownership and adjusting our fee structures and reporting, all discussed in our working groups, have yielded a greater demand for long-term mandates and strategies, which is a measure of our success thus far.”
The project was undertaken with the expectation that asset owners and managers will adopt some, if not all, of these provisions with the goal of fostering stronger relationships between owners and managers, and achieving long-term performance goals.
FCLTGlobal is dedicated to developing practical tools and approaches that encourage long-term behaviors in business and investment decision-making. It takes an active and market-based approach to achieve its goals. By conducting research and convening business leaders, FCLTGlobal develops tools and generates awareness of ways in which a longer-term focus can increase innovation, economic growth and future savings.
FCLTGlobal was founded in 2016 by BlackRock, Canada Pension Plan Investment Board, The Dow Chemical Company, McKinsey & Company, and Tata Sons out of the Focusing Capital on the Long Term initiative. Its membership encompasses asset owners, asset managers and corporations from around the world, including:
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