Compliance and Accountability
Investors are becoming increasingly discerning and keep an active eye on their funds. Fund managers must abide by regulations and caps, but they must also be sure to meet with the investment objectives of investors, while maintaining risk limits. Failure to do so results in investors suing the fund for negligence or non-compliance with fund policies.
Notable among these kind of situations is the case of Unilever superannuation fund vs Mercury Asset Management Unit of Merrill Lynch Investment Managers for poor fund performance. The fund was underperforming below the benchmark by about 10% for more than a year. The fund had promised to give returns over 1% over the benchmark with a tracking error of not more than 3%. Unilever sought 130 million pounds for non-performance. It was learnt that the fund manager had delegated the management of the fund to a junior officer and there were critical lacunae in the assessment and use of risk models. Eventually the two parties settled out of court.
Good funds consistently maintain the balance between high returns within prescribed risk limits. It is a complex task that requires a thorough understanding of risk models, market risks and an eye for opportunities for growth.