Joshua Deringer Comments on Boards Oversight of Subadvised Funds With BoardIQ

In “Cheaper Fund Subadvisers Can Save Money, but for Whom?,” BoardIQ turned to investment management partner Joshua Deringer for his commentary on boards of directors overseeing subadvised funds.

Deringer explained that at other complexes, the default position can be just the opposite, with any savings from a subadviser switch going to the primary adviser, said Deringer. “In most cases, it’s not going to go to the fund. It’s going to result in greater profitability to the adviser unless the board prevents that from happening,” he added.

Deringer noted that with a detailed breakdown of adviser profitability, directors can look at whether the adviser is trying to increase its profits by switching to a lower cost subadviser, and that the most common contract structure is for a fund to pay the primary manager, which then pays the subadvisers a portion of that amount.

Funds using a manager of managers structure “take this issue off the table” by paying subadvisers a consistent fee, Deringer noted.

The full article is available for BoardIQ subscribers.