Clark & Kerns (C&K), a U.S. pension fund manager for more than 20 years, plans to establish offices in a European and a Pacific Rim country in order to manage pension funds located in those countries and invest in their local stock markets. Tony Clark, CFA, managing partner, learns that investment organizations and their affiliates in the European country perform three functions:
• Consult with corporate pension sponsors on how the pension fund should be managed and by whom
• Manage their portfolios
• Execute securities transactions as a broker for the funds
Common practice in this country is to withhold disclosure of the ownership of business organizations. Clark believes that C&K must provide all three functions to compete effectively.
He therefore decides to establish offices in Europe to offer all three services to prospective pension fund clients, through local organizations owned by C&K. The pension consulting organization will be Europension Group; the portfolio management firm will be C&K International; and the broker-dealer operation will be Alps Securities.
a. Briefly describe two CFA Institute Standards of Professional Conduct that apply to Clark, if C&K provides all three functions on a combined basis. Describe the specific duty Clark is required to perform to comply with these standards.
Clark learns that a customary practice in the European country is to allocate at least 80 percent of pension fund assets to fixed-income securities.
b. Identify and briefly explain two CFA Institute Standards of Professional Conduct that apply to this situation.
Clark observes that portfolio managers in the Pacific Rim country frequently use insider information in their investment decisions. Because the pension fund management industry is performance oriented, Clark decides to adopt local investment practices as the only way to attract and retain local corporate clients in that country.
c. Identify and briefly explain two CFA Institute Standards of Professional Conduct that apply to this situation.