Model Mandate Appendix C

Asset Manager (AM): Firms that manage assets on behalf of individuals and institutions and are entrusted to make investment decisions on behalf of their clients.

Asset Owner (AO):  The institution that owns the underlying assets the management of which is entrusted to an asset manager (for example, pension funds, insurance companies, official institutions, banks, foundations, endowments, and family offices).

Collaborative Engagement:  When a group of investors come together to engage in dialogue with companies, often on environmental, social, and governance issues, with the aim of achieving  a more informed and constructive dialogue from which investors can benefit.

Double Materiality:  The concept that materiality should be judged from two different perspectives: the impact on the company’s development, performance and position; and the environmental and social impact of the company’s activities on a broad range of stakeholders. The concept also implies the need to assess the interconnectivity of the two types of materiality. This interconnectivity between single and double materiality is sometimes referred to as ‘dynamic materiality’.

Exclusion List:   A list that details the various financial instruments and legal entities that the asset manager may not invest in on behalf of the asset owner and which may be modified at the asset owner’s discretion.  These list may be used to exclude investment in categories such as certain industries, products or services as well as in named instruments or entities.

Investee Company:  A business entity which the asset manager chooses to invest in on behalf of the client. 

Investment Management Agreement (‘IMA’):  Contractually binding terms in the relationship between an asset owner and an asset manager.

Investment Product: A vehicle managed by an asset manager that uses investors’ capital to buy, sell, and hold investments for the benefit of the investor, including but not limited to the following:

• An investment company, corporation, trust, or other vehicle that allows investors the ability to pool their capital and invest it collectively (‘pooled fund’).
• A contract between an investor and an asset manager—such as certain insurance-based investment products and pension products.
• A limited partnership in which investors are limited partners and the investment manager is the general partner—such as certain hedge funds, real estate funds, and private equity funds.
• An investment strategy by which individually owned accounts are managed.

A vehicle offered by an asset manager that is wholly or partially sub-advised is considered an investment product of that manager, provided that the manager has discretion over the selection of the sub-advisor.

Management fee:  A fee paid to an asset manager for managing investments on a client’s behalf.

Meaningful Dialogue:  A regular discussion between senior representatives of each institution during which the asset owner and the asset manager will inform each other proactively about any development in the portfolio.

Performance fees:  A payment made to an asset manager for achieving specified outcomes, for example, based on the return to the client or on the achievement of any targets or benchmarks specified in the investment management agreement . 

Pooled Funds:  Externally managed investment portfolios that aggregate assets from individual investors for the purposes of investment.

Portfolio: A collection of financial investments such as stocks, bonds, commodities, cash, and cash equivalents.

Portfolio turnover: The measure of how quickly securities in a fund are either bought or sold by the asset manager, over a given period of time.

Request for Proposal (‘RFP’):  The document that outlines the asset owners intent to purchase asset management services for a pool of assets which is used to invite proposals  from asset managers. The RFP will typically describe the nature of the assets to be managed, the proposed terms and duration of the service, and the asset owner’s investment objectives. The RFP may be accompanied by a separate Due Diligence Questionnaire requesting information about the asset manager’s capabilities and policies.

Responsible Investment Policy: A document that captures an organisation’s strategy to incorporate environmental, social and governance (ESG) factors in investment decisions and active ownership. An organisation’s responsible investment policy can take many shapes. It may involve embedding responsible investment considerations into the organisation’s main investment policy. It could also consist of a standalone responsible investment policy.

Risk Management:  The processes an organisation uses to identify, assess and manage risks. In the context of Draft Clauses 27 and 28 it refers to how the asset manager manages risks across the full range of its activities, rather than the individual risk assessments made in the management of investment portfolios.

Screening: The application of filters to lists of potential securities, issuers, investments or sectors to rule investments in or out based on an investor’s preferences, such as ethics and values, and/or investment metrics, such as risk assessments. Exclusion lists are an example of ‘negative screening’.

Securities lending (also known as ‘stock lending’): The transfer of securities to a third party  who will provide the lender with collateral in the form of shares, bonds or cash. The borrower pays the lender a fee for the loan and is contractually obliged to return the securities on demand, or at the end of the agreed loan period.

Segregated Mandate: Externally managed investment portfolios run exclusively on the investor’s behalf and in accordance with the investment mandate set by the investor. 

Side letter: A document that is ancillary to the investment management agreement, either clarifying, supplementing or varying the original contract.

Stewardship Activities:  Individual or collaborative activities undertaken by an investor to protect and enhance the value of the assets they own or manage and attain the investment objectives, and to optimise the long-term value of common economic, social, governance and environmental assets, on which returns and clients’ or beneficiaries’ interests depend.  Examples include, but are not limited to, engagement with current and potential investee companies; voting at shareholder meetings; filing of shareholder resolutions; engagement with policymakers and standard setters; and where necessary litigation.

Stewardship Code:  A code addressed to institutional investors (asset owners and asset managers) that sets out principles for exercising stewardship and, in some cases,  requires  institutional investors to disclose publicly information about their investment processes and  stewardship policies and practices. There are currently codes in over twenty markets. Copies of all codes can be found here.

Sustainable Development Goal(s) (‘SDG’):   The 17 sustainability-focused goals issued by the United Nations.

Sustainable Development Investing (‘SDI’):  Utilizing and allocating capital in a way that effects positive contribution to sustainable development, using SDGs as a standard of measurement. The contribution can be made through products, services, and/or operations or through projects financed across asset classes and in multiple sectors or themes. The positive contribution of an investment should not be outweighed by negative impacts from the same investment over the life of this investment.

Systemic risks: Risks that, if they were to materialise, would lead to the breakdown of an entire system rather than simply the failure of individual parts. In an economic context, the term refers to risk of collapse of an entire financial system (or a major part of it) due to macroeconomic, environmental, or social factors, resulting in the likelihood of real and immediate damage to the economy.

Voting policy:  The policies and/or guidelines that define the framework by which the asset manager will exercise voting rights on behalf of the asset owner. Depending on the terms agreed, it may be either the asset manager’s or the asset owner’s policy or guidelines. In the latter case, it may be integrated in the owner’s Responsible Investment Policy.