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Re-thinking the role of the ACD

With the authorised corporate director (ACD) back in the media spotlight again in relation to Woodford, now is a good time to explore its future role.

Historically, the ACD has been one of the most overlooked components of asset management, with the fund management firm, individual fund managers and sometimes the asset allocator taking the limelight.

However, the ACD has always been essential.

For a start, the ACD is the entity licensed to create the funds. A fund firm cannot offer funds without an ACD. It will either sit in-house, as with Embark and our Horizon funds, or is outsourced to an ACD that provides services to multiple fund managers.

Moreover, the ACD has ultimate regulatory responsibility for a fund and is accountable to the FCA, acting as an independent steward protecting the interests of investors. It also oversees the activity of the investment manager to ensure the fund is run in accordance with its stated objectives and with FCA rules and principles.

These core functions are all essential, but it’s important to challenge the well-worn idea that the ACD is simply an administrative requirement in asset management and little more.

So what role should it play?

Advisers have already become increasingly aware of its role because when things go wrong, it is often the ACD in the firing line.

The most spectacular intervention by an ACD in recent years involved the shuttering of the Woodford funds and ultimately the unwinding of the largest income fund and transfer of the management of the smaller mutual fund to another asset manager. That stoked all manner of controversy about when and how an ACD should act and perhaps some surprise that it could make such dramatic interventions.

This fraught example aside, the principle at its core highlights the need for advisers to understand where the ACD sits within their recommended investment solutions.

But, in addition to their critical function as independent stewards, ACDs should be playing a more progressive role. This is particularly important in guiding how the investment solution evolves over time, albeit on a very long time horizon.

The simple reason for this is that circumstances change: the world doesn’t stand still and it’s essential that this is reflected in fund mandates.

What does this look like in practice?

To take our own ACD as an example, in addition to its core function of protecting the interests of all investors in the funds by providing independent governance and stewardship, we believe that it plays an essential role in the long-term approach that is taken by our Horizon funds.

For instance, given the growing importance of incorporating Environmental, Social and Governance (ESG) factors in the investment process, we have actively engaged with the investment manager Columbia Threadneedle to understand their approach to ESG and how it might evolve in the future. From this process we established an ESG statement of principles for the ACD to guide the future direction taken.

Or take another aspect – the risk oversight role, which is currently in the spotlight, is key to ensuring investors’ outcomes are met. The ACD has an important function in ensuring that funds have a sufficient level of liquidity and that they are meeting the diversification requirements of the mandate.

We know that investment professionals and advisers are increasingly concerned about liquidity. Indeed, regular mini liquidity crises have arguably become the norm since the financial crisis.

There are global challenges and interventions – as we saw this year in March and April as multiple billions of dollars were pumped into the global system by central banks. And, there are specific challenges for an asset class or group of funds that can also lead to problems, though are often related to the wider picture.

We see our role as ensuring that our funds are set up to weather the former and not to get caught out by the latter. Indeed, given recent global and fund-specific challenges – many of which came long before COVID-19 and lockdown – we have thoroughly reviewed liquidity across our fund range and adopted a more conservative approach.

That is not to say that the ACD is involved in the allocation and investment decisions, but it’s about adjusting the mandate and asking the challenging questions, as well as stress testing the approach that is being taken.

The cost of investing is also an increasingly important issue for investors and for regulators, so we see the ACD’s role in setting and monitoring costs as an important component in ensuring clients are getting value for money.

This is not to say that the situation is the same for all, but advisers should expect, and even demand, more from an ACD in the coming years

Keep it in the picture

A well run ACD has always played an important role for your clients. If anything, it should become more important in coming years. It’s essential that it’s given due consideration.

Read more articles via our insights page

About the author

Thomas Rostron, CEO, Horizon by Embark

Thomas is the CEO of Horizon by Embark, following Embark Group’s acquisition of Zurich’s Authorised Corporate Director (ACD) & Investment Management (Zurich Investment Services (UK) Limited) businesses on 1 May 2020. Thomas has more than 30 years’ experience in asset and wealth management, including positions as Head of Global Fund Distribution at Fortis Investments and Managing Director Investment Management with Barclays Wealth.

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