Mandate
A mandate is a formal agreement outlining how a manager must invest capital, specifying strategy, risk limits, and constraints for each investor.
What Is a Mandate?
A mandate is a formal agreement between an allocator (such as an investor or institution) and a fund manager, detailing the investment strategy, risk tolerance, and specific guidelines the manager must follow when managing the investor’s capital. It serves as a strategic blueprint, ensuring the manager’s decisions align with the investor’s objectives, risk profile, and any restrictions.
How Does a Mandate Work?
Mandates are customized to each investor’s needs and typically include:
Permitted asset classes: Which types of assets the manager can invest in
Leverage limits: Maximum allowable borrowing or risk exposure
Benchmarks: Performance standards for measuring success
Drawdown thresholds: Limits on acceptable losses
Liquidity terms: Rules for how quickly assets can be bought or sold
Mandates are established during onboarding and are often supported by documents like investor memorandums or factsheets. For pooled funds, each product has its own mandate, guiding the manager’s day-to-day investment decisions and ensuring alignment with investor goals.
Why Are Mandates Important?
Mandates are critical because they:
Provide clarity and structure for both manager and investor
Protect investor interests by setting clear boundaries and expectations
Foster transparency and accountability in fund management
Help avoid breaches that could lead to redemptions or reputational damage
Example: Mandate in Practice
An investor seeking capital preservation might set a mandate that restricts investments to government bonds and cash, with no equities or high-yield debt allowed. Another investor focused on growth may allow a broader asset mix and higher risk tolerance.
Types of Mandates
Capital preservation: Focuses on safety and minimal risk
Growth: Seeks higher returns, accepting more risk
Balanced: Mixes growth and safety
Thematic or ESG: Specifies sectors, regions, or ethical guidelines
