Understanding Investment Management Mandates: Your Money, Your Rules

An investment management mandate is a set of instructions or guidelines that an investor gives to a fund manager to manage a pool of capital using a clear strategy. It is a rulebook that helps the manager make informed decisions about the fund's governance, risk management, and investment approach. The mandate sets out the objectives, risk tolerance, asset allocation, restrictions, and performance benchmarks for the fund. It is an important tool for transparency and setting expectations between the investor and the fund manager. It also helps prospective investors choose between funds by understanding the fund's investment strategy and risk profile.

Investment mandate components

Investment mandates are a set of instructions or guidelines that inform the actions of an investment manager. They are an important tool for both individual and institutional investment strategies, ensuring that investments are aligned with the investor's goals and risk tolerance.

The components of an investment mandate typically include:

• Objectives: These are the primary goals of the investment, such as capital preservation, income generation, or capital appreciation. The overarching objective will inform the direction of the investment strategy.
• Risk Tolerance: This component addresses the level of risk an investor is willing to take on to achieve their objectives. The accepted level of risk will determine the investment strategy. For example, an investor with a low-risk tolerance will opt for low-volatility investments, while a high-risk tolerance may lead to high-risk, high-reward stocks.
• Asset Allocation: This lays out how assets are to be allocated, such as the distribution of stocks, bonds, cash, or other investment options.
• Restrictions: This component identifies any specific constraints or exclusions, such as avoiding certain sectors or adhering to ethical investment principles. For example, an investor may wish to exclude companies involved in the arms trade or fossil fuel industry.
• Performance Benchmarks: Performance benchmarks are criteria against which the success of the investment strategy is measured. They allow investors to track the progress made by the investment manager toward the objectives set out in the investment mandate.

Investment mandate types

An investment mandate is a set of instructions given by an investor to a fund manager to manage a pool of capital using a clear strategy. It provides a framework for how to allocate and invest money, including rules on priorities, goals, benchmarks, risk, and types of funds to be either chosen or avoided.

There are several types of investment mandates, including:

• Small-capitalization stock: This mandate requires finding attractive firms that are below a certain market cap size.
• Low turnover: This restricts the percentage of the portfolio that can be sold in any given year, usually to 3% or 5% to achieve low turnover.
• Global investment: This mandate means an investor can own stocks in both their home country and abroad.
• International investment: This type of mandate restricts the portfolio to firms that are based or doing business mostly outside the investor's home country.
• Long-term growth: This mandate prioritises appreciation over current income or volatility risk, with stocks being a common type of holding.
• Income: This mandate prioritises current passive income from sources such as dividends, interest, and rents over long-term growth.
• Environmental, Social, and Governance (ESG): An ESG mandate instructs managers to invest in securities that are ethical, socially responsible, and sustainable. This may involve avoiding shares of companies that earn profits from fossil fuels, guns, or prison labour. ESG mandates may also prioritise ethical and inclusive leadership, environmental protection, and community investment.

These investment mandate types provide a framework for investors and fund managers to make informed decisions about how to allocate and invest their capital, taking into account various factors such as risk tolerance, asset allocation, restrictions, and performance benchmarks.

How investment mandates work

An investment mandate is a set of instructions or guidelines that an investor provides to their investment manager. It is a rulebook that lays out how a pool of assets should be invested. The mandate sets out rules to guide the choices of the investment manager, who must follow these rules.

The mandate is important as it ensures the investor's money is invested wisely and adheres to their strategic goals. It also helps the investment manager by clarifying expectations and providing a framework for transparency and accountability.

The mandate will include rules on priorities and goals, acceptable levels of risk, types of funds to be used or avoided, and any other rules for how the assets should be managed. It may also include performance benchmarks to measure the progress of the investment manager.

For example, if an individual investor plans to use a large percentage of their capital to purchase a home in the future, they may have a mandate based on capital preservation. In this case, the investment manager would seek out low-risk, low-volatility investments.

Mandates can also be used by the managers of large funds to guide their choices when selecting securities to include in their funds. For instance, a fund with a mandate to maximise growth will invest in high-risk, high-reward stocks.

There are three main types of investment mandates: conservative or capital preservation, balanced fund, and growth or speculative.

It is important to stay up-to-date with investment mandates as they can change. There are various resources available to help investors do this, such as publications and weekly calls.

Why investment mandates are important

Investment mandates are important because they provide a clear strategy and guidelines for investment managers to follow when managing a pool of capital or an individual's portfolio. They outline the objectives, risk tolerance, asset allocation, restrictions, and performance benchmarks that should be considered when making investment decisions. Without investment mandates, it would be difficult for investment managers to make informed choices that align with their clients' goals and risk tolerance.

Investment mandates are also important for investors as they allow them to understand how their money will be managed and enable them to choose the right fund for their investment goals. By providing a clear set of instructions and boundaries, investment mandates help investors make informed decisions about where to invest their money. This is especially important when investing in mutual funds, ETFs, or other managed funds, as it ensures that the fund's strategy aligns with the investor's goals and risk tolerance.

Additionally, investment mandates help to ensure transparency and set clear expectations for all parties involved. They provide a framework that guides the actions of fund managers and keeps them accountable to investors. This is crucial for maintaining trust and ensuring that investors' interests are protected.

Furthermore, investment mandates can help individuals who are investing their own money. By creating their own investment mandate, individuals can set clear guidelines for themselves and make more informed and disciplined investment decisions. This can help them stay focused on their financial goals and avoid emotional or impulsive investing.

Overall, investment mandates play a critical role in the investment process by providing a clear strategy, ensuring transparency, setting expectations, and helping investors and investment managers make informed decisions that align with their goals and risk tolerance.

How to stay updated on investment mandates

Staying updated on investment mandates is crucial for anyone considering investing their money through a mutual fund, ETF, or other managed fund. By understanding the mandate, investors can make informed decisions about how to allocate their capital. Here are some ways to stay up-to-date on investment mandates:

• MandateWire: This platform provides valuable insights into investment intelligence, including RFPs, planned allocations, and institutional asset flows in Europe, North America, APAC, India, the Middle East, and Africa. It offers a comprehensive view of the market with five key components: intelligence, market data, analysis, directories, and documents. While pricing information is not readily available, MandateWire offers a demo to help users determine if it suits their needs.
• Dakota Searches: This platform offers a free email subscription service, providing real-time updates on over 150 investment mandates weekly. It covers institutional investment searches, allowing users to receive alerts for their preferred asset classes and stay informed about public pension fund monthly meetings.
• Publications and Weekly Calls: Staying informed through industry publications and weekly calls can provide valuable insights into new searches, RFPs, and job changes within the investment management industry.
• Internal Staff and Dedicated Teams: For organisations, it can be challenging to rely solely on internal staff to track the numerous mandates announced weekly. However, having a dedicated team that combs through various sources to locate new mandates can be beneficial.

By utilising these resources and services, individuals and firms can make informed decisions about their investments and stay ahead in the rapidly changing investment landscape.

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