The challenges of aligning the interests of investment managers and their clients were grappled with at one of the sessions at the Cayman Alternative Investment Summit, which has been taking place in Grand Cayman this week (February 4-5).
Dr Daniel Summerfield, co-head of responsible investment at USS, who chaired the panel, told delegates that it was an age old problem in the industry and that conflicts of interest were almost inevitable.
He argued that regulation was not a solution and it came down to individuals understanding and abiding by their fiduciary duty which was to put the interests of others above their own.
“But fiduciary duties can easily be crowded out by the contractual terms of a relationship,” he said. “We expect managers to exercise fiduciary care and you have to trust them but also verify.”
He also noted that some organisations have sought ways of solving this problem. Some large funds, for instance, invest their own money alongside that of their clients, he noted, stressing that this not solve many of the issues.
Bruce Zimmerman, chief executive officer (CEO) and chief information officer (CIO) of the University of Texas Investment Management, said that he makes every effort to align his interests with managers by becoming one of their biggest clients and suppliers of capital but also admitted that “things change” and “we do not live in a perfect world”.
Donald Lindsey, CIO of the American Institutes for Research, added that as a much smaller organisation he does not have the same luxury. “Instead, I have to do my own research and due diligence on those we work with and minimise any risk of our interests not being aligned. Nothing is too good to walk away from and that is what we do if we are not comfortable that things are aligned.”
Cayman Alternative Investment Summit, Dr Daniel Summerfield, USS, Bruce Zimmerman, University of Texas Investment Management, Donald Lindsey,