Policy: Investment due diligence
- The due diligence conducted during the course of the selection process for investment managers;
- The objectives and expectations for monitoring external asset managers after their appointment;
- The regular, on-going due diligence evaluation for all asset managers and investment service providers engaged by the University in the management of the Long Term Investment Pool and General Cash Fund.
- To implement the investment strategy, the Council must have processes and criterial for selecting each investment. Disappointment with investment manager and investment service providers can be reduced by considering the tangible “4P” (people, process/philosophy/ portfolios and performance) and the intangible “4 Ps” (passion, perspective, purpose and progress). Strategic-partner risk is better understood when complete due diligence identifies operational, trading and regulatory risk.
- Prior to the selection of an investment for the portfolio, effective due diligence, commensurate with the nature and characteristic of the investment, are to be undertaken.
- The contracts with asset managers and other investment professionals must contain certain protections for the University;
- In addition, the Council through its Finance Committee and the Investment Office will hold regular meetings with the portfolio’s investment managers including conducting regular, periodic on site examinations of investment managers and other investment service providers as part of its on-going due diligence.
Appointment of new managers
- Due diligence is conducted on new investment managers and investment service providers as part of the selection process. The Investment Office will perform or cause to be performed all necessary and reasonable due diligence with respect to the final slate of asset managers or service providers being considered for engagement by the University. Due diligence includes those processes identified deemed reasonable by the Council after consultation with the asset consultant, auditor, and/or other consultants the Council deems appropriate.
- Investment Managers must show to have adequacy in the following areas:
- Organisational competency
- Experienced investment staff
- Performance track record with similar mandates
- Commercial, operational, legal and taxation issues including holding necessary licenses
- Information technology systems
- Risk control procedures
- Quality client reporting
- Prior to appointing an investment manager:
- the tax structure and implications for a NFP Australian investor will be documented;
- the legal structure of the investment, including the rights, responsibilities, warranties and representations will be assessed; and
- the ability of the custodian and its methodology for valuing the investment will be documented.
- Prior to funding an investment manager, an operational risk assessment report of the candidate will be requested. The cost of the report to be borne by the candidate.
Operational due diligence
- The Investment Office is responsible for conducting reviews of investment managers operations, including middle and back office functions, to distinguish a well-controlled and managed investment operation. Operational due diligence reviews include:
- Investment manager’s use of technology
- Investment implementation and operational controls
- Investment administration and operational controls
- Business continuity and disaster recovery plans
- Compliance and audit
Performance due diligence
- The Investment Office is responsible for conducting reviews of investment manager performance. Monthly performance reviews include:
- Reconciliation of the individual manager’s reported performance with the performance for each manager calculated by the custodian.
- Attribution analysis of individual managers against the designated benchmark.
- In addition, quarterly reviews of equity investment manager style characteristics are conducted.
- The Investment Office is responsible for conducting performance reviews of investment consultants and other investment professionals annually.
On-going Due Diligence
- The Investment Office is responsible for conducting regular due diligence on each manager, asset consultant, direct investment and other investment professionals engaged by the University in the ordinary course of its investment business. The Council and its Finance Committee, are kept apprised of any important facts, industry trends and other events that may reasonably affect the Council’s continued retention of such manager, consultant, direct investment or investment professional. Regular due diligence addresses governance and human resources of the firm as well as over-reaching strategic concerns of the Council and includes the following at the indicated intervals:
Nature of review
Review of the investment mangers’ Internal Controls Report, Certification of Insurance, Business Continuity Plan and Derivative Risk Statements and accompanying Audit Certifications.
Review of the managers’ response to the University’s questionnaire designed to identify significant personnel changes, deficient technical standards and practices, reports filed with regulators in the jurisdictions where the managers reside, as well as to address deterioration of investment returns or unresolved issues relating to a manager.
Review of the investment managers’ monthly reports and attestations as well as the managers’ IMA compliance.
- In addition, on-site due diligence evaluations are conducted with both domestic and international investment managers at their primary place of business when practical. Virtual evaluations are conducted quarterly andmay be necessary on a more frequent basis if there have been significant personnel changes, deterioration of investment returns or to the extent there are unresolved issues relating to a manager. The requirement of regular, on-site due diligence with private equity and limited liability partnership managers is met through virtual quarterly meetings, in some circumstances, by attendance to annual business or annual client meetings sponsored by the business entity in which the University has invested.
- Quarterly evaluations include the following:
- Evaluate the investment manager’s staff and how they jointly carry out their fiduciary responsibility to the University;
- Interview individuals who directly manage the University’s account;
- Evaluate the significance of personnel shifts or organisational changes that may affect the University’s portfolio;
- Hold in-depth reviews regarding the investment manager’s philosophy, style and approach to investing the University’s assets; and
- Develop a clear understanding of the significance of short-term periods of good or poor performance by the manager.
Due diligence reporting
- The Investment Office reports any defects to the Chief Financial Officer for review. General findings are reported to Finance Committee not less than once a quarter.
Review of this policy
- This policy will be reviewed every three years by Finance Committee or more frequently if:
- Meaningful change is made to the investment selection process;
- Relevant legislation or regulation requirements change.
- When required, the Corporate Governance and Risk Office will audit and report to the Audit and Risk Management Committee and the Finance Committee on the appropriateness of, and compliance with, this procedure.
Delegations relevant to this policy
- 346: Buy, sell and subscribe for Cth Bonds and Treasury: Up to $250,000 for Student Managed Fund.
- 348: Place/withdraw investments in negotiable certificates of deposit and interest-bearing bank deposits: Up to $500,000 for Student Managed Fund.
- 350: Buy and sell accepted bank bills: Up to $500,000 for Student Managed Fund.
- 351: Buy and sell listed fixed interest securities: Up to $250,000 for Student Managed Fund.
- 356: Buy, sell and subscribe for equity securities and options: Up to $500,000 for Student Managed Fund.
- 357: Buy, sell and subscribe units in property trusts listed on the Australian Stock Exchange: Up to $250,000 for Student Managed Fund.
- 448: Invest in Cash Management Trusts: Up to $750,000 for the Student Managed Fund.
- 449: Execute investment transactions (subject to investment policy & procedures).
- 450: Execute a term deposit (subject to investment policy & procedures).
- 362: Buy and sell investment property, subject to Finance Committee endorsement.
- 451: Execute management contracts, lease and other agreements in relation to the management of investment properties (subject ot investment policy & procedures).
- 452: Authorise expenditure in relation to maintenance and capital improvements of investment properties within budget.
- 453: Appoint investment consultants.
- 454: Appoint fund managers, subject to endorsement by Finance Committee.
- 455: Appoint investment custodian.
|Printable version (PDF)|
|Title||Investment due diligence|
|Purpose||This Investment Due Diligence Policy documents the University’s due diligence processes for the management of its investment assets. This policy should be read in conjunction with the Investment Policy.|
|Topic/ SubTopic||Finance - Investments|
|Effective Date||9 Jun 2022|
|Next Review Date||9 Jun 2027|
|Responsible Officer:||Chief Financial Officer|
|Approved By:||ANU Council|
|Contact Area||Finance and Business Services|
Australian National University Act 1991
Public Governance, Performance and Accountability Act 2013
Corporations Act 2001 (and associated regulations)
Corporations Regulations 2001
APRA’s Prudential Standard SPS 530 Investment Governance
Plant Breeder's Rights Act 1994
Prudential Practice Guide SPG 530 Investment Governance
|Delegations||346,348,350,351, 356, 448-454|
Information generated and received by ANU staff in the course of conducting business on behalf of ANU is a record and should be captured by an authorised recordkeeping system. To learn more about University records and recordkeeping practice at ANU, see ANU recordkeeping and Policy: Records and archives management.