In contrast to collective management, an individual (or discretionary) management mandate enables investors with sufficient funds to obtain customised management of their assets. Under this arrangement, the investor gives the manager a power of attorney to manage his or investment portfolio. However, the services offered must still be appropriate for the investor’s circumstances.

Mandates can be offered by a portfolio management company as its main business, or as a sideline by other investment services providers (ISPs), as in the case of “private asset management” services offered by banks. Such providers must first submit their programme of operations to the securities regulator for its approval.

Mandates, along with investment funds, are a key component of the asset management industry. There is a wide range of individual management services available to both institutional and retail investors.

Individual management mandates

A discretionary management mandate is a contract governed by civil law drawn up between the manager (the agent) and the investor (the principal) and signed in a face-to-face meeting with retail investors, or after a request for proposals in the case of institutional investors.

Under the terms of the mandate, or discretionary management contract, the manager takes any initiatives that it sees fit to manage the investor’s portfolio for best results. Transactions are carried out without the investor’s prior consent and reported to him or her after the fact.

The management mandate is a contract, yet some clauses are obligatory in France, where management mandates must stipulate:

  • The investors’ status
  • The investment universe and management objectives
  • Benchmarks
  • The compensation procedure for the management company
  • The eligible financial instruments
  • Specific authorisation to trade in derivative markets, where appropriate
  • Reporting procedures (the contract must stipulate quarterly reports at the minimum, and monthly reports when derivatives are used) and performance measurement procedures.

Individual asset management under a mandate differs from collective management in several ways:

  • Investment services providers that are not the portfolio management company granting the mandate may perform both the financial management and custody functions,
  • The investor’s wishes are not implicitly represented when the voting rights attaching to the assets under management are exercised,
  • No separate tax and accounting treatment of the assets under management; the assets and liabilities in the portfolio under management cannot be separated from the investor’s other assets.

Requests for proposals

Institutional investors increasingly use requests for proposals (RFPs) when selecting companies to manage their investments. An RFP is a specification of requirements issued by the investor (with the help of a consultant in some cases) to several management companies with a view to delegating some or all of the investor’s financial management.

This process takes place in a formal and codified framework:

  • Before issuing an RFP, the investor must determine what the structure of its portfolio will be (management objectives, desired risk profiles, constraints, etc.). A set of technical specifications is then drawn up, along with a list of management companies invited to bid.
  • The investor then sends the specifications and a quantitative and qualitative questionnaire to the asset management companies and gives them a few weeks to respond.
  • Finally, a question and answer session is held with the management companies to examine some aspects in greater detail. This last phase may include a due diligence visit.