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Fiduciary management is a financial formula, but it is also about responsibility. In the financial markets, overseeing assets on behalf of multiple investors requires a high degree of transparency and accountability. In some cases, as it is with pension funds, no one individual or firm could manage the entire investment process. Money managers who are selected under a fiduciary management model could be tied to one or more of many asset classes, or categories of investment, and may be changed in accordance with the policies outlined by the owner of the assets, such as a pension fund.
Pension funds are early adopters of fiduciary management in part because there is often a lack of manpower and resources at these institutions to orchestrate proper money management alone. Typically, a pension fund is made up a chief investment officer, investment team, and board of directors to support or deny recommendations. Also, a third-party consulting firm is often engaged by a pension fund to guide the direction of the investment portfolio. All of these members meet regularly to discuss the direction of a fund. A third-party fiduciary management firm makes decisions on behalf of the pension in cooperation with plan officials and according to an agreeable strategy.
Money in the pension fund that represents the retirement of plan members, or employees, is invested in the financial markets in order to grow the value of the assets. Pension fund managers direct the lion's share of the total portfolio to different asset managers and pay those firms fees in exchange for overseeing the money. The pension then has a roster of different asset managers for various asset classes, such as stocks, bonds, and real estate. Placing the total of pension fund assets into the hands of a fiduciary manager is essentially entrusting that firm with the investment decisions for the fund.
It is not uncommon to hear a pension officer state that a change is being made to that manager lineup as a fiduciary responsibility. If an asset manager is not generating the types of profits that were expected or strays from an original investment strategy that was in line with the pension's direction, fiduciary management would require the pension to replace that asset manager. Fiduciary management also extends to performing adequate due diligence on asset managers before placing any money in the hands of these firms. Lines may become blurred when a fiduciary manager is also a money management firm and a potential bidder for the contract of a pension client.
Pension funds and health insurance firms in the Netherlands were among the first to use fiduciary management. Anton van Nunen is largely credited with having originated the formula. The model eventually gained popularity in other parts of Europe, including the U.K.
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