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INVESTMENT MANAGER OVERVIEW

Hiring an Investment Manager

When hiring an investment manager who is also going to act as a QPAM to oversee and implement the real estate investment strategy of the pension plan, the trustees of the pension plan have an obligation to ensure that the selected QPAM has the necessary real estate investment management experience to undertake the assigned responsibilities.

The investment management agreement should contain a specific representation that the investment manager is an investment manager as defined in Section 3(38) of ERISA. Section 3(38) includes the following requirements:

  • That the investment manager is properly licensed as an investment adviser with the Securities and Exchange Commission under the Investment Advisers Act of 1940;

  • That the investment manager is acting as a fiduciary with respect to the matter being reviewed;

In addition, the pension plan should confirm that the investment manager:

  • Has appropriate Errors & Omissions insurance coverage; and

  • Has the experience, qualifications and background to perform the work in question.

Counsel and the trustees of the pension plan need to be cautious when selecting a QPAM because the qualification criteria are specific: Hiring an investment manager who is not actually a QPAM will not relieve the trustees of their fiduciary obligations under ERISA, and may cause their Errors and Omissions Insurance policy to be voided, thereby losing the protections afforded by that insurance policy for the real estate investments made by the pension plan.

Furthermore, a pension plan should only consider engaging an investment manager who has significant experience providing real estate investment management services and who has the requisite qualifications to do so. Finally, when evaluating candidates for this role, trustees should evaluate whether their candidates have any conflicts of interest that could impact their ability to act as a QPAM and investment manager for the pension plan.

NEXT: Trustee Fiduciary Responsibility