IDC Issues Sub-Adviser Oversight Report

The Independent Directors Council has issued a report titled “Board Oversight of Subadvisers” which is designed to give “practical guidance” to Boards. The Report addresses the due diligence that should be required by principal advisers. (In this regard, see “Sub-Adviser Due Diligence Review: Sample Certification Letter and Questionnaire” linked below.) The Report also addresses considerations when (i) approving sub-advisory agreements including how to analyze sub-advisory fees, (ii) evaluatng operations integration, and (iii) ongoing Board oversight. The Report relies heavily on the CCO to obtain ongoing certifications and evaluate the sub-adviser’s compliance program.

OUR TAKE: As a result of this report, Boards may be increasingly turning to the CCO to serve in a broader sub-adviser oversight function. As the CCO role evolves, we increasingly see the Board use the CCO as its most reliable and independent agent to carry out its duties.  Separate account advisers should also consider the recommendations when using sub-advisers.