Investment Oversight

Whereas regulation and prospect lay out risks and limitations that are reasonably easy to quantify, the methods and procedures of fund portfolio managers are often aimed at “quantifying the unquantifiable” or to “look into the future”.

There are literally 100’s of ways to manage a portfolio. Most importantly, portfolio managers should be able to explain why their method works, how their procedures are handled on a day-to-day basis and how they have arrived at the performance tracked by the IFM.

We present a simple, but general framework for understanding a portfolio management process, enabling us to meet the requirements of the 18/698. We even ask the annoying question:

Why is the chosen investment strategy likely to give a superior return?

An AIF is by definition a vehicle that invests in “Alternative” investments, which means “anything but transferable securities”. In most cases, AIFs invest for more money than investors have placed in the vehicle – they are leveraged.

AIFs may be subject to significantly lighter regulation than UCITS.

The investments inside an AIF typically have certain qualities that make them more difficult to handle than transferable securities. They may be illiquid, reliable valuations may be hard to obtain. They may be very volatile or they may be subject to political risk.

Illiquid AIFs are typically bought for the cash flow they are expected to bring.

Highly liquid AIFs investing in derivatives and currencies deliver no cash flow but are dependent in the manager being able to capture the market movements.

We look at the philosophies behind and risks contained in those two main types of investments.

We look at some real-life examples, a property fund, a currency fund and an infrastructure fund in order to understand the different challenges posed for the IFM when exercising the investment oversight obligation.

We even look at an example from the real-world: How to value a small company while taking into consideration the risks involved in buying the company.