The Investment Management Firm Flashcards
4 advantages of corporate ownership structure to a firm’s owners
- Tax and fiscal benefits
- Supports long life business ventures
- Creation of Brand Identity
- Structure gives incentive to attract and retain talent
Compensation structures (4 types)
- Base salary
- Annual cash bonus
- Shares or share purchase options
- Profit sharing
Objective of separation of duties principle
minimize the potential for employee self-dealing via collusion with another individual in the firm
from a regulatory perspective, there are two specific positions of critical importance
- The ultimate designated person (UDP)
2. The chief compliance officer (CCO)
Role of ultimate designated person (UDP)
responsible to the self-regulatory organizations for the firm’s conduct and the supervision of its employees.
Role of chief compliance officer (CCO)
Responsible for implementing a supervision system that will provide reasonable assurance that compliance standards are being met.
Securities regulators allow the following three common prospectus exemptions:
- Accredited investor exemption
- Minimum investment exemption
- Offering memorandum exemption
What is the minimum investment exemption and its amount?
allows the sale of securities to non-individual investors who make a prescribed minimum investment at $150,000.
What does an investment agreement do?
documents all aspects of the services the institutional investment management firm will provide and its relationship with the investor.
institutional investment managers offer their services by way of four main channels:
- Pooled funds
- Segregated/managed accounts
- Limited partnerships
- Sub-advisory capacity
What is a segregated account
an investment account owned by an institutional investor and managed by a third-party portfolio manager
difference between unit trusts and Limited partnerships structure
the latter offer features, such as tax-loss selling to reduce a specific client’s tax liabilities.
The asset mix committee is usually made up of
the following individuals (4)
- Chief investment officer (Chair)
- Head of fixed income
- Head of equities
- Chief economist
five popular styles of mandates
- Growth
- Value
- Growth at a reasonable price (GARP)
- Momentum (or sector rotation)
- Technically based
Offsore investments tend to be offered by two types of firms:
LP’s and hedge funds
areas of structure and operations that an institutional investment management firm must modify when offering offshore-based investment funds (5)
- Legal
- Tax
- Custody and safe keeping
- Security settlement
- Unitholder services
The fund manager’s primary responsibilities are as follows (4)
- Preparing and filing the mutual fund prospectus regulatory and legal documents.
- Ensuring service providers exercise due diligence
- Negotiating contracts with service providers.
- Ensuring service providers conduct activities properly
What does the mutual fund trustee do?
holds the title to the property (the cash and securities) of a mutual fund on behalf of its unitholders.
What does the custodian of a mutual fund do? (2)
- holds all of the fund’s cash and securities. (Safekeeper.)
* security settlement
What does The registrar of a mutual fund do?
keeps a current register of the individual owners of each unit of the fund.
what does the independent review committee do?
reviews conflict of interest matters. no staff of firm can be on the committee.
in which case does the investment manager serves as the general partner?
When the corporate structure is a LP
Fees paid by unitholder (6)
- Fund manager fees
- Fund administrator (registrar) fees
- Fund custody and safekeeping fees
- Fund legal and audit expenses
- Commissions and transactions fees
- Investment management fees
Hedge funds normally charge two types of investment management fees (give approximate % too)
- Asset Based (1.5 - 2%)
* Performance based (20%)
industry challenges. (6)
- investment performance
- access to suitable distribution
- increased compliance requirements
- increasing competition
- attracting and retaining staff
- Growth of passive investment strategies.
What are Phantom shares?
- Represent the equity of an investment management firm that is wholly owned by another company.
- Phantom shares do not carry votes and have no realizable value upon the sale of the firm.
