Disclosure about sub-adviser: Overview, definition, and example
What is a disclosure about sub-adviser?
A disclosure about a sub-adviser refers to the information provided by an investment manager or financial institution regarding the use of a third-party entity (the sub-adviser) to manage some or all of the assets in a fund or portfolio. The sub-adviser is typically an external professional or firm with specialized expertise in a certain area, such as a specific asset class or investment strategy. The primary investment manager remains responsible for overseeing the overall management of the portfolio, but they may delegate certain duties to the sub-adviser.
Disclosure about sub-advisers is important for transparency, ensuring that clients or investors are aware of who is managing their assets and the nature of the arrangement. It helps clients make informed decisions about the potential risks and benefits of entrusting a sub-adviser with their investment.
Why is disclosure about sub-adviser important?
Disclosure about sub-advisers is important because it provides transparency and allows investors or clients to understand who is responsible for managing their investments, even if it’s not the primary manager. By disclosing the involvement of sub-advisers, investors can evaluate the qualifications, experience, and track record of all parties involved in managing their assets.
In addition, regulatory requirements often require such disclosures to ensure that investors are fully informed about the management structure of their investments. This helps build trust and ensures compliance with laws and regulations.
Understanding disclosure about sub-adviser through an example
Imagine a mutual fund is managed by a large investment management firm that specializes in general market strategies. However, the fund invests heavily in international equities, and the manager doesn’t have the specific expertise required to manage those investments. As a result, they hire a sub-adviser who specializes in international equities to handle those investments within the fund.
The fund’s disclosure documents will include information about the sub-adviser, such as their qualifications, the scope of their responsibilities, and any fees they may receive for managing the assets. This disclosure allows investors to understand that the international equities portion of the fund is being handled by a specialist.
Example of a disclosure about sub-adviser clause
Here’s an example of what a disclosure about sub-adviser might look like in a fund’s prospectus or investment agreement:
“The Fund has appointed [Sub-Adviser Name] to manage a portion of its international equity portfolio. [Sub-Adviser Name] is an experienced investment management firm with expertise in international markets. The sub-adviser will be compensated separately for their services, and the primary investment manager will retain oversight and responsibility for the overall management of the Fund.”
This clause clearly discloses the use of a sub-adviser, their role, and the compensation arrangement, providing transparency to the investors.
Conclusion
Disclosure about a sub-adviser ensures that investors or clients are aware of the external parties involved in managing their assets, allowing them to make more informed decisions. This disclosure fosters transparency, helps build trust, and ensures regulatory compliance. Whether in mutual funds, private equity, or other investment structures, disclosing the involvement of sub-advisers is an essential part of the investment process, protecting both the investors and the institutions managing their assets.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.