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Investment Adviser/Manager

A fund’s investment adviser (also called investment manager) is the entity that has overall responsibility for directing the fund’s investments and handling its day-to-day operations. The investment adviser has its own employees, including investment professionals who make investment decisions for the fund. The investment adviser also typically provides all operational and office support for the fund, maintains its books and records, and provides legal and compliance services. All of the investment adviser’s services to the fund are rendered pursuant to an advisory agreement between the adviser and the fund. The advisory agreement includes the terms of the investment adviser’s compensation. An adviser is usually compensated based on the assets of the fund (or sometimes on fund performance). A fund’s investment adviser is often the fund’s initial sponsor and its initial shareholder through the “seed money” it invests to create the fund.

Subadvisers

A fund’s investment adviser may contract with one or more subadvisers to manage all or part of the fund’s portfolio. In arrangements referred to as “manager-of-managers” or “multi-manager,” an adviser hires one or more subadvisers to manage the fund’s assets. If the fund has more than one subadviser, the portion of the assets managed by each subadviser is referred to as a “sleeve.” The fund’s portfolio decisions may be delegated entirely to subadvisers or the investment adviser may manage a portion of the portfolio.

did you know
Regardless of how a subadviser is used, the fund’s board, under the 1940 Act, has essentially the same oversight responsibilities relating to the subadviser as it does for the investment adviser.

To protect investors and guard against potential conflicts of interest and self-dealing, a fund’s investment adviser, any subadvisers, their affiliates, and their employees are subject to many standards and legal restrictions, including those under the Advisers Act. An investment adviser, and any subadviser, must have a compliance program in place to ensure compliance with all applicable laws. The compliance program should include detailed policies and procedures, and the program must be overseen by a chief compliance officer (CCO).

to learn more
Read the IDC task force paper Board Oversight of Subadvisers.

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