Grouped among key areas of governance, incentives, metrics, and engagement, the onboarding checklist allows for effective communication between the asset owner and manager and sets parameters for the relationship to function transparently.
The asset owner and manager have agreed on a joint investment policy statement that reflects objectives, including return expectations, statutory and regulatory requirements, risk tolerance, time horizons, and investment guidelines with any exclusions.
The asset owner has shared with the manager accepted investor responsibilities, such as net-zero portfolio commitments; diversity, equity, and inclusion; or any other accepted responsibilities that could shape how the investor expects to earn their returns.
The asset owner has shared with the manager a list of, and the context surrounding, engagements, partnerships, or memberships with external bodies, such as the Net Zero Asset Owner Alliance, Institutional Investors Group on Climate Change, etc.
The asset owner has described how decisions for hiring and terminating external asset management agreements are made and who is responsible for them.
The asset owner has described how key persons responsible for portfolio decisions within their organization, such as asset allocation, hiring and terminating managers, are rewarded (or not) based on those decisions.
The asset owner has described any important external advisors involved in the decision-making process and their incentives.
The asset owner has explained funded status, operating requirements, or any key pressures or unique circumstances that the organization is facing.
METRICS, REPORTING, AND MEASUREMENT
The asset owner and manager have agreed on the most appropriate benchmark(s), a methodology for assessing long-term performance, and on ways to note differences between the investible universe and the benchmark.
The asset owner and manager have agreed on key performance indicators (KPIs), along with a methodology to assess progress on investor responsibilities and commitments.
The manager is able to provide customizable performance reporting solutions that would help de-emphasize short-term performance in favor of evaluating longer-term performance, by using the manager scorecard.
The manager reports on stewardship, active ownership, and engagement with portfolio companies, and how these activities have added value relative to the stated investment strategy.
The manager sets up a process to allow the asset owner to vote their shares instead of electing the manager's proxy voting policies, in case the asset owner wishes to vote on select shareholder resolutions.
The asset owner and manager agree on how the relationship will work, including meeting schedules, methods of communication, and conditions for off-cycle reporting.
By following our model for long-term contracts, as well as our associated tools, investors can ensure that the relationship between asset owners and managers is anchored with clear objectives and expectations, while avoiding surprises and averting common default patterns of short-term performance evaluation.
19 July 2022 - While a meeting schedule is typically agreed at the start of a relationship, the manager scorecard can be completed at any point during the relationship. The scorecard can help focus attention on areas of importance and objectives beyond short-term financial performance.
19 July 2022 - This matrix provides a menu of key contract provisions for mandates. We compare typical provisions, which tend to reflect a short-term mindset, to those promoting a longer-term approach, and offer ideas for exploratory provisions. The provisions are relevant for separately managed accounts and commingled funds, with unique provisions described for the latter.
19 July 2022 - Finding the right manager is crucial to developing a successful relationship—this list of questions can help asset owners select managers that are capable of investing over the long term, as well as achieve alignment around philosophy and beliefs regarding long-term value creation.