Duties of the sub-adviser: Overview, definition, and example
What are the duties of the sub-adviser?
Duties of the sub-adviser refer to the specific responsibilities and obligations that a sub-adviser must fulfill when managing investments on behalf of an investment adviser or fund. These duties typically include investment selection, portfolio management, regulatory compliance, and reporting to the primary adviser or client.
For example, in a mutual fund management agreement, a sub-adviser may be responsible for selecting securities that align with the fund’s investment strategy. Similarly, in a private equity fund, a sub-adviser may analyze market trends and recommend investment opportunities while following the fund manager’s guidelines.
Why are the duties of the sub-adviser important?
Clearly defining the duties of a sub-adviser ensures accountability, transparency, and compliance with investment policies and regulatory standards. Without clear guidelines, disputes may arise over the sub-adviser’s responsibilities or performance expectations.
For businesses and investors, sub-adviser duties help ensure proper management of assets, adherence to fiduciary obligations, and alignment with investment objectives. A well-structured agreement protects both the investment firm and the clients.
Understanding duties of the sub-adviser through an example
Imagine a hedge fund that hires a sub-adviser to manage its fixed-income portfolio. The sub-adviser’s contract specifies that they must invest in government bonds and corporate debt while maintaining a risk profile within agreed parameters. The sub-adviser must also submit monthly performance reports to the hedge fund manager.
In another scenario, a wealth management firm engages a sub-adviser to oversee international stock investments. The sub-adviser is required to follow ESG (Environmental, Social, and Governance) investment guidelines, ensuring that all securities selected align with ethical investing principles.
Example of a duties of the sub-adviser clause
Here's an example of a duties of the sub-adviser clause and how it may appear in an agreement:
“The Sub-Adviser shall provide investment advisory services in accordance with the Investment Guidelines set forth in this Agreement. The Sub-Adviser shall have discretionary authority to manage the designated portfolio, select securities, and adjust asset allocations, subject to approval by the Adviser. The Sub-Adviser shall comply with all applicable laws, maintain accurate records, and provide periodic reports detailing investment performance and strategy adjustments.”
Conclusion
Duties of the sub-adviser define the responsibilities, authority, and compliance requirements for managing investments on behalf of an adviser or fund. These duties ensure that investment decisions align with client goals and regulatory standards.
By including a duties of the sub-adviser clause in agreements, investment firms can clarify expectations, protect client assets, and establish clear guidelines for portfolio management and reporting.
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.