Elements of Long-Term Investment Mandates Download Toolkit

The terms and conditions that asset managers and asset owners use can drive long-term or short-term behavior. Based on a series of working groups with leading asset owners and asset managers from around the world, we offer this list of questions to anchor investment mandate negotiations in a long-term direction.

Fees

Do the fees and fee structures reward a long-term focus? Discounts that increase with longevity may strengthen owners’ commitment and give managers more flexibility to make long-term investments.

Benchmark

To what extent does benchmark-relative return capture a specific strategy’s performance? Are any other metrics as important, such as absolute return or liability matching?

Contract Term

Does the contract encourage long-term commitment and protect against overreacting to short-term events? For instance, a three- to five-year contract term may set longer-term expectations than an at-will contract and still give the owner discretion to terminate, if necessary.

Redemptions

Is the asset manager able to commit to the long-term strategy while maintaining the liquidity needed to meet permissible redemptions? Would allowing in-kind redemptions help to strike this balance?

Manager or Strategy Capacity

Does the investment strategy have asset capacity limits? Noting capacity limits in the contract may instill discipline and mitigate the common pattern of asset gathering following strong performance.

Reporting

Do the tables and commentary highlight long-term investment risks and future investment prospects? Reporting could discuss long-term returns first and primarily comment on annual or longer performance.

Projections

Have the negotiations and discussions included explicit performance projections across multiple timeframes to account for the differences between short- and long-term risks? If so, how?

Active Ownership

Is part of this strategy to add value through activities beyond portfolio-specific decisions? These activities may include maintaining dialogue with portfolio companies and casting proxy votes strategically.

Disclosures

Does the manager conduct business in a way that is consistent with long-term investing? Disclosing personnel or process changes may offer better leading indicators of future performance than past returns do.

Evaluation

Does the contract establish a plan for how the owner will evaluate the manager? For instance, scheduling regular evaluations may enable more open communication than watch-listing during periods of underperformance.

Anchor Graphic

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