Representations and warranties of sub-adviser: Overview, definition, and example
What are representations and warranties of sub-adviser?
Representations and warranties of sub-adviser are formal statements made by a sub-adviser in an investment management or sub-advisory agreement. These statements confirm that the sub-adviser is properly registered, authorized, and qualified to provide investment management services, and that it is in compliance with applicable laws and regulatory obligations. They provide legal assurances to the adviser or fund engaging the sub-adviser.
Why are representations and warranties of sub-adviser important?
These representations and warranties are important because they protect the primary adviser or fund by confirming that the sub-adviser is legally capable of performing its duties and is not subject to undisclosed risks—such as regulatory investigations, conflicts of interest, or breaches of fiduciary duty. If a representation turns out to be false, it can trigger indemnification or termination rights and reduce the risk of liability for the primary adviser.
Understanding representations and warranties of sub-adviser through an example
If an investment firm hires a sub-adviser to manage a portion of a mutual fund portfolio, the sub-adviser might be required to represent that it is registered with the SEC, has no material litigation pending, and will follow the fund’s investment policies. If it later emerges that the sub-adviser was under investigation and failed to disclose it, the primary adviser could claim breach of warranty and terminate the relationship.
Example of how representations and warranties of sub-adviser may appear in a contract
Here’s how a representations and warranties provision may appear in a sub-advisory agreement:
"The Sub-Adviser represents and warrants that: (a) it is duly registered as an investment adviser under the Investment Advisers Act of 1940; (b) it has full power and authority to enter into and perform this Agreement; (c) its services hereunder will comply with all applicable laws and regulations; and (d) it is not subject to any pending or threatened regulatory or legal proceedings that would impair its ability to perform its obligations under this Agreement."
Conclusion
Representations and warranties of sub-adviser are essential for confirming that the sub-adviser is legally and operationally capable of managing client assets. They help establish trust and accountability between the parties and provide a foundation for legal protection if problems arise. These provisions should be carefully tailored to reflect the specific regulatory environment and investment structure involved.
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.