I just got back from a due diligence trip to Zimbabwe with Fiona O’Connor, the portfolio manager of the Step Up Fund, which has an ESG investment mandate. We visited an amazing women’s university that has solicited donations for a scholarship program for disadvantaged women. The school is very well run, and with the new scholarship program, investment returns are expected to increase, because they will no longer need to subsidize tuition. I’ve been assured the other holdings within the Step Up Fund are of equal caliber. I got to know O’Connor during the trip and feel she has a good grasp of ESG issues. I really believe you should invest in the Step Up Fund, because it meets your investment objectives. I would start with a EUR5 million investment.
During Jensen’s meeting with her client, did she most likely make any inappropriate comments related to Standard III(C): Suitability?
- No
- Yes, with regard to due diligence
- Yes, with regard to due diligence and asset allocation
Solution
C is correct. During Jensen’s client meeting, she made at least two inappropriate comments related to Standard III(C): Suitability. Jensen has a duty to judge the suitability of an investment in the context of the client’s total portfolio. However, Jensen has not undertaken a proper due diligence assessment on the Fund; she attended an introductory meeting lasting about one hour, which would not be considered in-depth due diligence of the Step Up Fund. The due diligence trip to Zimbabwe pertained only to one single investment within the Fund and thus would not be considered a fund due diligence evaluation. Consequently, at this point in time, she would not be able to determine whether the fund was suitable for her client’s portfolio without undertaking further analysis. Jensen also has a duty under Standard III(C): Suitability to determine whether an investment is suitable to the client’s financial situation and consistent with the client’s written objectives, mandates, and constraints before making an investment recommendation or taking investment actions. Jensen has recommended her client invest a minimum of EUR5 million in the Step Up Fund. Because her clients are small pension funds with low risk profiles, investing 25% of the portfolio in the Step Up Fund would not likely be appropriate.
Questions states that Fund meets its investment objective so I thought mandate is followed.
Are we suppose to conclude that Agar Due diligence hi nai kiya toh mandate follow kar rahe hai ki nai vo samjhega kaise and hence violating mandate too?
This is a very straight foreard question ans is definately option C the due diligence of stepup fund is not properly conducted as we know a fund has many investments and looking at a single investment (that to in to much isolation) does not conclude anything…also jensen has recommended her client invest a minimum of EUR5 million in the Step Up Fund. Because her clients are small pension funds with low risk profiles, investing 25% of the portfolio in the Step Up Fund would not likely be appropriate.