As companies grow and diversify their assets, external asset managers become a crucial component in managing their investments effectively. An external asset manager (EAM) is a professional who manages and oversees investments for individuals or institutions. EAMs provide a range of services, including investment planning, portfolio management, and risk assessment. For companies looking to hire an EAM, the external asset manager agreement is a critical document that outlines the scope of services, compensation, and responsibilities of both parties.
An external asset manager agreement is a legal document that establishes the terms and conditions between the client and EAM. It is a bilateral contract that outlines the responsibilities and expectations of both parties. The agreement covers a broad range of aspects, including the desired investment strategy, asset allocation, and risk tolerance. The agreement also establishes the fee structure and the roles and responsibilities of both parties.
When creating an external asset manager agreement, companies should consider the specific needs of their investment strategy. The agreement should reflect the company`s financial goals and risk tolerance. The EAM`s expertise and experience should also be reflected in the agreement, along with their level of responsibility in managing the investment portfolio.
The external asset manager agreement should also outline the method of compensation and any associated fees. Compensation can be through a flat fee, performance fee, or a combination of both. Performance fees are typically tied to the performance of the portfolio, and are often a percentage of the returns generated by the EAM. It is important to note that performance fees can incentivize EAMs to take on higher risks, so it is essential to define the criteria for assessing the EAM`s performance.
Another key consideration in the external asset manager agreement is the scope of services provided by the EAM. This can range from managing a single asset class to managing a diverse range of assets across multiple asset classes. The agreement should establish the EAM`s responsibility for ongoing monitoring, reporting, and communication with the client.
In conclusion, an external asset manager agreement is an essential document that sets out the terms and conditions of a client`s relationship with an EAM. The agreement outlines the investment strategy, asset allocation, and risk tolerance, among other factors, and establishes the fee structure and responsibilities of both parties. By carefully considering the needs of their investment strategy and working with an experienced EAM, companies can create an agreement that reflects their financial goals and ensures effective management of their assets.