What are the fiduciary responsibilities of asset managers during a pandemic?

Milton Osborn, Director and Corporate Funds Lawyer at CMS RM Partners

As stock markets tumble in the face of COVID-19, commonly known as coronavirus, what are the people behind your unit trusts and other investments - the asset managers - doing to safeguard your investments?

We asked this question of Milton Osborn, director and corporate funds lawyer at leading corporate law firm CMS RM Partners. “Asset managers certainly won’t be sitting still, I can assure you,” Osborn says. “COVID-19 is clearly impacting asset managers’ portfolios and, depending on their strategies, it will require them to act in different ways. Whether it be a move to more defensive assets, opportunistic buying, anticipating the timing of and further spread of the disease or, if mandated, shorting certain assets or markets, asset managers are very busy right now.”

Asset managers’ strategy will be driven by their mandate and hedge funds, Osborn says. “More loosely regulated asset managers will be looking for short-term opportunities and making more aggressive calls,” he predicts.

Does that mean they can willy-nilly buy and sell? No, says Osborn. “Legally, the duties of an asset manager are closely linked to the mandate of the fund which the asset manager oversees. Apart from the mandate, there are other requirements that the asset manager must exercise in their role,” he explains.

These include:
• a “duty of care” appropriate for their required skills, which means they have to take care with how they manage the interests of their clients;
• “fiduciary duties”, which require asset managers to act ethically, legally and in accordance with the level of trust placed in them; and
• to act in compliance with the regulations related to their fund and the relevant financial services industry.

The touchstone for how asset managers are likely to be dealing with the current infection is the SARS Virus Crisis from the early 2000s.

“The SARS was a less contagious virus, and the concern was certainly not on the scale of the coronavirus, but it provides a guide as to how the markets react, where the opportunities are and how asset managers should respond. That said, every day brings more shocks and surprises and we are moving into 'new territory',” he concludes.