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Strategic relationship agreements: Better returns through better relationships
Journal of Securities Operations & Custody,
12
(3),
237-245
(2020)
Abstract
Institutional investors increasingly seek the ability to access a diversity of investment manager products as well as the ability to move swiftly among those products to maximise risk-adjusted returns as market conditions change. Yet larger investors, like public pension funds, that might have the most ability to dictate terms and access tend to have slow, onerous governance structures, hampering their ability to make optimal use of the clout that their size and prestige might otherwise allow. This paper will explore an innovative contractual relationship that can provide such investors with favourable economic terms as well as agility to move across a broad spectrum of a manager’s products and capabilities. These Strategic Relationship Agreements (SRAs) also provide the manager with easier, quicker access to the investor’s capital, and enhanced ability to meet the precise needs of the investor, in the moment. An SRA is not for every investor. Nor is it for every manager relationship, even for those investors who choose to employ SRAs. But it can be used to great effect when the conditions are right and when implemented properly. This paper will explore the history of SRAs — why and how they have been used — as well as the key factors that may make an SRA the right vehicle for an investormanager relationship, and the indispensable elements that allow an SRA to work as designed. The authors recommend that large, sophisticated investors strongly — but carefully — consider SRAs to help them meet their goals and needs.
Keywords: strategic; relationships; agility; governance; pensions; innovative
The full article is available to subscribers to the journal.
Author's Biography
Thomas A. Hickey Iii as Chair of Foley & Lardner, LLP Fund Formation & Investment Management Group, leads a dedicated team of lawyers who advise clients on the structuring, formation and ongoing management of various private investment funds, including venture capital funds, private equity funds, fixed income funds and hedge funds, and their management companies. Mr Hickey, who drafted the original Master Custody Account, represents a wide variety of institutional investors, especially public employee pension plans, Employee Retirement Income Security Act (ERISA) of 1974 pension plans established in accordance with the US and endowment plans. Key to this advice is Mr Hickey’s 40-plus years of experience with these investors and his knowledge of each investor’s statutory obligations, ordinances and specific policies.
Michael P. Calabrese is Of Counsel and a corporate lawyer with Foley & Lardner LLP. He is based in the firm’s Los Angeles office and focuses his practice on fund formation and investment management. Michael provides counsel to institutional investors and government agencies, particularly pension funds. Prior to joining Foley, Michael was the chief counsel for San Bernardino County Employees Retirement Association, where he served as the general counsel to the over 30,000-member pension system. Michael also served as the chief deputy county counsel for the County of Merced and the chief deputy city attorney for the City of San Diego. He gained experience as an associate attorney at three law firms in California and Michigan after graduating from law school. Michael earned his law degree from Michigan State University College of Law (JD, summa cum laude, 1999), where he ranked second in the class, was a recipient of the Dean Charles H. King full scholarship as well as received two best oralist awards at national moot courts competitions and five Jurisprudence Achievement Awards. During this time, he externed with Michigan Supreme Court Justice Clifford Taylor. Michael earned his undergraduate degree in philosophy with high honours from the University of Michigan (AB, 1990).
