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Limited recourse: Difference between revisions
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On the other hand, limiting recourse to a pool of assets ''within'' a single [[Legal entity|fund entity]] — say to those managed by a single [[investment manager]] (some funds subcontract out the management of their portfolios to multiple asset managers) — being a ''subset'' of the total number of assets owned by the fund — is a different story altogether. This, by sleepy market convention, has become a standard part of the furniture, but to the [[JC]] and his friends and relations, seems ''batshit insane''. | On the other hand, limiting recourse to a pool of assets ''within'' a single [[Legal entity|fund entity]] — say to those managed by a single [[investment manager]] (some funds subcontract out the management of their portfolios to multiple asset managers) — being a ''subset'' of the total number of assets owned by the fund — is a different story altogether. This, by sleepy market convention, has become a standard part of the furniture, but to the [[JC]] and his friends and relations, seems ''batshit insane''. | ||
So firstly, the [[investment manager]] is an [[agent]]. An [[agent]] isn’t liable ''at all'' for ''any'' of its [[principal]]’s obligations. It is a mere [[intermediary]]: the [[JC]] | So firstly, the [[investment manager]] is an [[agent]]. An [[agent]] isn’t liable ''at all'' for ''any'' of its [[principal]]’s obligations. It is a mere [[intermediary]]: the [[JC]] has waxed long and hard enough about that [[Agent|elsewhere]]; suffice to say the concept of [[agency]] is one of those things we feel [[Legal concepts all bankers should know|''everyone'' in financial services should know]]; this is not one to drop-kick to your [[legal eagle]]s: it is fundamental to the workings of all finance. | ||
So why would an agent seek to limit its [[principal]]’s liability to the particular pool of assets that [[principal]] has allocated to that agent? | So why would an [[agent]] seek to limit its [[principal]]’s liability to the particular pool of assets that [[principal]] has allocated to that agent? | ||
Probably because the [[principal]] has said, “I don’t trust you flash city types, with your [[Sharpe ratio]]s and your [[intelligent beta]]. If I am not careful you could put on some [[Amaranth Advisors LLC|insanely cavalier spread play on the seasonal convergence of natural gas futures]] and blow up my whole fund. I don’t want you to do that. So I am only prepared to risk the assets I give to you, and that is the end of it.” | Probably because the [[principal]] has said, “I don’t trust you flash city types, with your [[Sharpe ratio]]s and your [[intelligent beta]]. If I am not careful you could put on some [[Amaranth Advisors LLC|insanely cavalier spread play on the seasonal convergence of natural gas futures]] and blow up my whole fund. I don’t want you to do that. So I am only prepared to risk the assets I give to you, and that is the end of it.” | ||