Sub-Adviser Conflicts of Interest
This article was originally published in the Investment Funds Practitioner in December 2011.
Recently, we have received a few novel applications in which filers have requested interfund trading or principal trading relief on behalf of both the filer, as portfolio manager, and on behalf of third party subadvisers to the filer’s funds. Prior to NI 31-103, we did not receive applications for similar relief specifically from subadvisers.
Where the filer for exemptive relief is the manager and portfolio manager, our view is that separate relief is not needed on behalf of the subadviser as long as the subadviser operates on the same conditions applicable to the lead portfolio manager pursuant to any conflict relief granted specifically to the lead portfolio manager.
NI 81-107 imposes the obligation on a fund manager to identify conflict of interest matters and to refer them to the Independent Review Committee (IRC) of the manager’s funds. Since the implementation of NI 81-107, staff’s view has been that a fund manager should have in place policies and procedures to identify, monitor, and to address conflicts at the subadviser level. To the extent such matters raise a conflict of interest under section 1.2 of NI 81-107, the manager is responsible for referring such conflicts to the IRC of the funds.