Fund Management
Mandate and structure
Fund management is managing a portfolio of securities or derivatives for someone else, usually with discretion. It covers collective investment schemes (unit trust funds, wholesale funds, exchange-traded funds) and private mandates for retail, sophisticated or institutional clients. The exam tests the boundary with investment advice, the role of the trustee, and the investment restrictions.
- A CMSL for fund management is required; a recommendation without discretion is investment advice, not fund management.
- Fund assets are held by an independent trustee or custodian, segregated from the manager's own assets. A manager that takes custody of scheme assets breaks the structure.
- The manager must invest within the mandate and the applicable SC guidelines: issuer and group exposure limits, illiquid asset caps, related-party limits, and prohibitions on lending or guaranteeing.
- Fair treatment: allocate investment opportunities, including hot IPOs and block trades, under a written allocation policy - never cherry-picking between funds or favouring a proprietary account.
- Disclosure: prospectus and Product Highlights Sheet for retail funds, clear fee disclosure (management, trustee, sales charge), NAV computed and published per the deed, forward pricing, periodic fund reports.
- Conflicts and soft-dollar arrangements must be managed so the benefit flows to the fund, not the manager.
Worked example
A manager receives an allocation of shares in an oversubscribed IPO and directs them to the best-performing fund so its published return looks stronger. That is a breach: the allocation policy must be applied on objective criteria before the allocation is known, and documented. If a fund managed by the firm is already a substantial shareholder of the issuer, that conflict also needs disclosure and management.
Traps
- Treating a discretionary mandate as advice, or advice as a mandate.
- Assuming the manager may hold fund assets for administrative convenience.
- Applying retail fund limits to wholesale funds without checking the relevant guideline.