Investment Mandates

An investment mandate is basically an instruction given to an investment company to manage a pool of funds or investment capital using a specific strategy.

There are situations where we want to invest but avoid all the risk, stress, and monitoring that comes with investing ourselves and we outsource it to an asset management company or a mutual fund.

In these cases, you can either choose to allow the investment company run with it, bearing whatever results come out of it or you can tell the investment company exactly what you want first.

An investment mandate is basically an instruction given to an investment company to manage a pool of funds or investment capital using a specific strategy. This strategy generally offers information on risk parameters, the objective of the investment, amongst other things.

Consequently, these guidelines help restrict a portfolio manager to specific industries, asset classes, market capitalizations or business sizes, etc. Investment mandates can differ from one line of investment to the other and from one person/ company to the other.

One individual could be interested in capital preservation and another could be at the opposite end of the spectrum, with a focus on speculation. The following are some of the most popular types of investment mandates.

Capital Preservation Investment Mandate

A capital preservation investment mandate is for the risk averse investor. The investor might not generally be risk averse, but might not just be willing to take a risk on this specific fund.

For example, if an investor has set out an amount of N700,000 he wants to use to pay his rent next year, his goal is to keep that money safe from risk while also guarding it against rising inflation.

The investment mandate would be to be conservative and stick to only investments that can guarantee capital preservation.

Long Term Growth Investment Mandate

Long term investment mandates are focused on long term growth. This could be 10 years, 15 years, or even 20 years into the future. These mandates are used to direct asset managers to investment options that ensure sustainable growth at a steady pace.

Stock investments are great options for fund managers who want to ensure steady growth for a long period of time; that is, ignoring short-medium term volatility. The portfolio or asset manager would thus focus on long-term capital appreciation of the securities over such volatility risk.

Income Investment Mandates

For one investor, investment is a long term source of wealth. For another, it is an active stream of income. Income investment mandate is where instruction is given to the asset manager or portfolio manager to focus on earning current passive income.

This income could range from dividends where stock investment is used, to interests, as opposed to long-term investment growth or capital preservation. The investor might be a retiree or really anyone who depends on this income for survival. Without this mandate his goals would be in complete misalignment with the asset or portfolio manager.

Speculation Investment Mandate

Speculation investment mandates are for the risk takers. They are the ones who want to get as rich as they can as fast as they can, even if it means taking impossible risks. People who take on speculation investments undoubtedly do not relay on the money for survival, can afford to lose such funds, and are willing to try their hands on many things.

As such, the portfolio manager would be responsible for finding high-growth opportunities albeit risky or not. After all, the higher the risk, the higher the possibility of impeccable returns.

Investment mandates could also cut across industries, currencies, international investments, and so on. The idea is just to be very clear on what you want as an investor and pass on that knowledge to the people who can make it happen.

Written by Lawretta Egba.