Vision 2020 Capital Partners Case Scenario
One such opportunity is the creation of a division to manage an Emerging and Frontier Market Balanced Fund (the Fund). The board has had several inquiries from clients asking for such a product. The board believes the Fund is an ideal business line to meet client demand and create monthly asset management fees. The board thinks the Fund should also be required to act as a buyer of last resort for all its corporate finance clients’ private placements. The board believes this arrangement would act as a major incentive for private businesses to use their corporate finance services, thereby increasing revenues from their primary business activity.
Because none of the V2020 board members or senior managers are experienced in asset management, the board hires Lauren Akinyi, CFA, an independent consultant who works with various clients in the asset management industry. She is asked to undertake a study on an appropriate structure for the Fund to meet both corporate finance and fund client needs. She is also asked to help V2020 set up policies and procedures for the new fund to make certain all capital market regulations have been followed.
The board informs Akinyi that the policies and procedures should also ensure compliance with the CFA Institute Asset Manager Code of Professional Conduct (Asset Manager Code).
Subsequently, in a report to the board, Akinyi makes the following recommendations concerning compliance with the Asset Manager Code:
- Recommendation 1: V2020 should abide by the following principles of conduct:
- Principle 1Proceed with skill, competence, and diligence;
- Principle 2Act with independence and objectivity; and
- Principle 3Provide client performance within three days after month-end.
- Recommendation 2: To take advantage of their vast business experience, the board of directors should implement new policies. Specifically, the board should
- Policy 1take an active daily role in managing the Fund’s assets,
- Policy 2designate an existing employee as a compliance officer, and
- Policy 3disclose any conflicts of interest arising from their business interests.
- Recommendation 3: To avoid any conflicts of interest between the investment banking business and the new fund management business, a separate wholly owned subsidiary should be created to undertake the fund management business. The Fund would then provide a 100% guarantee to buy the private placements of the corporate finance clients without having to disclose to all clients the relationship between the two entities.
- Recommendation 4: To ensure timely and efficient trades in each of the markets in which the Fund invests, only one stockbroker in each market should be used. The board should also consider buying an equity stake in each of the appointed brokers as an added profit opportunity.
After the Fund completes its first year of operations, V2020 receives a letter from its regulator. The notification imposes heavy fines for poor disclosures to its fund clients and mandates the replacement of the senior fund manager as a condition for the renewal of V2020’s asset management license. The board challenges the ruling in court, stating that the Fund made the necessary full disclosures. After six months, not wanting to incur further expensive legal fees or waste more precious time, the board, without admitting or denying fault, settles out of court, paying a smaller fine. Subsequently, the senior fund manager is terminated but receives a multimillion-dollar bonus upon leaving. After the replacement of the senior fund manager, the license is renewed for a further year. The regulatory body, however, gives a warning that if the Fund has any future violations, their license will be permanently revoked. Subsequently, the Fund discloses to its clients that the regulator has renewed its license for one year after the termination of the senior fund manager, a condition of the renewal. They also disclose the out-of-court settlement and the fine paid.
Question
Which of Akinyi’s policies in Recommendation 2 would least likely comply with the Asset Manager Code of Professional Conduct and its general principles if implemented?
- Policy 1
- Policy 2
- Policy 3
Solution
A is correct. The board of directors have corporate finance experience and business experience but not asset management experience. Consequently, they may not act with skill or competence, as required by the fourth principle of the General Principles of Conduct. Therefore, they should hire professional asset managers to manage the Fund.
B is incorrect because by appointing an existing employee to act as a Compliance Officer the Fund would be in Compliance with the Asset Manager Code assuming that the employee is competent, knowledgeable, and credible and is empowered to carry out their duties.
C is incorrect because the Directors should disclose any conflicts of interest arising from their business associations outside of V2020, namely their positions as trustees for small pensions funds.
整个题目都是什么东西。。。炸了要
