What Is An Investment Mandate?

An investment mandate is described as an instruction given by an investor to an investment, wealth, or fund manager to manage an amount or pool of capital using a clear strategy.

Let’s say two people, A and B, have ₦200,000 to save or invest and take it to an investment or wealth manager for safety and/ or growth. The manager has no idea what to do with it without a clear instructions from them of what the purpose of the investment is.

If person A’s goal is to save the money so that he can fund the purchase of a warehouse in the next 6 months and person B’s goal is to double her money in the shortest time possible, you can bet that the investment strategy employed by the investment manager for both of them will most probably not be the same.

This is because while person A’s investment mandate is a capital preservation mandate, person B’s investment mandate is a growth or even speculation investment mandate. This is what investment mandates are about.

An investment mandate is described as an instruction given by an investor to an investment, wealth, or fund manager to manage an amount or pool of capital using a clear strategy. It also refers to a set of guidelines, rules, used for the purpose of managing a specific portfolio.

This strategy typically states the objectives of the investment defines the risk parameters, and so much more. On the basis of the description, the manager will be able to determine the investment portfolio to create and the kind of investment securities that will be used to achieve the client’s investment goal.

As you can imagine, an investment mandate now becomes very important in managing a pool of funds. Like in the example, if person A wishes to preserve his capital, there is really a limited number of investments that can be used to build an effective investment portfolio for the person.

For the purpose and duration of his investment, you will avoid volatile investments, probably not even bother investing in stocks and not need to overly diversify his investment as risk is already minimal.

For his investment, the gains are not his priority. However, for the long term investment mandate person, you can spread his or her portfolio across asset classes, sectors and regions. The fund manager will have to think of a long-term diversification strategy that will produce returns that are enough to cover long-term inflation.

The goal of whether capital is preserved or not depends on the level of risk the client is willing to trade in return for the possibility of more gains. Both mutual funds and index funds are made on the basis of clear investment mandates.

Broadly, there are three kinds of investment mandates. They include conservative or capital preservation investment mandate, a balanced fund, or a growth or speculative investment mandate.

Having an understanding of your investment mandate will also help you make the best investment decisions that will guide the attainment of your objectives.

Written by Lawretta Egba.