The recent suspension of the Woodford Equity Income fund has thrust the role of the authorised corporate director into the spotlight.
For understandable reasons it is usually the investment manager who is the public face of a fund, after all it will be their choice of stocks and analysis of macroeconomic conditions that will help to decide whether an investor makes an attractive return or not.
However, behind the scenes, it is the authorised fund manager that carries the regulatory responsibilities for operating the fund and it is they who are accountable to the Financial Conduct Authority.
The most common fund structure in the UK is the open-ended investment company and the authorised fund manager for an OEIC is called the authorised corporate director.
• The authorised corporate director has ultimate regulatory responsibility for a fund and is accountable to the FCA
• The director acts as an independent steward protecting the interests of investors in a fund
• The director oversees the investment manager to ensure the fund is run in accordance with its stated objectives and with FCA rules and principles
Protecting investors’ interests
The role of the authorised corporate director is an essential one in protecting the best interests of every investor in the fund; the director acts as an independent steward ensuring that the investment team, and those marketing and distributing the fund, are doing what they should.
While in larger fund groups the director role will often be performed in-house, many investment boutiques, wealth managers and independent financial advice companies running their own funds prefer to appoint an independent host director company to do the job.
That leaves the investment boutique or adviser company, known as the fund’s ‘sponsor’, free to concentrate on investment management, marketing and distribution.
The FCA’s expectations of the authorised corporate director are considerable and properly fulfilling such an important fiduciary duty for investors requires significant resources and breadth of expertise.
Investment manager oversight
What has made headlines recently is the authorised corporate director’s role in providing oversight of the investment manager, although the responsibilities are much wider than this.
Overseeing the investment manager means ensuring that the fund is being managed in accordance with its stated investment objectives and policies.
Also, that it remains within its investment and borrowing powers and complies with FCA regulations in areas such as the 10 per cent limit on unlisted holdings in a undertakings for collective investment in transferable securities portfolio.
The director must facilitate and ensure proper valuation of all holdings – listed and unlisted.
They must check the fund is only investing in eligible assets and, where it is included in an Investment Association sector, that it is being managed in accordance with sector requirements.
Ensuring the investment manager is complying with all of these requirements and, if they are not, having the necessary relationship with them to intervene effectively, requires a host director company to not only have resources, but the authority that comes with expertise and experience.