Investment Manager Agreements: Understanding the Basics
An investment manager agreement (IMA) is a legal contract between an investor and an investment manager whereby the former appoints the latter to manage their assets. The IMA sets out the terms and conditions that govern the relationship between the investor and the investment manager.
The IMA is an important document that protects the interests of both parties. It outlines the roles and responsibilities of the investment manager, sets out the investment objectives, and allocates the risks involved in the investments.
Before entering into an IMA, investors should ensure that they understand the basics of the agreement, including:
1. Investment objectives
The IMA should clearly state the investment objectives of the investor. This could be growth, income, or a combination of both. The investment manager should be able to meet these objectives through a diversified portfolio of investments.
2. Investment strategies
The IMA should describe the investment strategies that the investment manager will use to achieve the investment objectives. Different strategies may be used for different investments, and the IMA should reflect this.
3. Fees and expenses
The IMA should specify the fees and expenses that the investor will pay to the investment manager. These may include management fees, performance fees, and expenses related to the investments.
4. Risk allocation
The IMA should specify how the risks associated with the investments will be allocated between the investor and the investment manager. This will depend on the investment objectives and the level of risk that the investor is willing to take.
5. Reporting requirements
The IMA should specify the reporting requirements that the investment manager must adhere to. These may include regular reports on the performance of the investments, as well as any changes to the investment strategy or portfolio.
In conclusion, an IMA is an important document that outlines the terms and conditions of the agreement between an investor and an investment manager. Investors should ensure that they understand the basic elements of the IMA, including investment objectives, investment strategies, fees and expenses, risk allocation, and reporting requirements. By doing so, investors can protect their interests and ensure that their investments are managed effectively.
