Question

What could be some of the major violations of fideciary duties by asset managers of hedge funds and mutual funds?

Answer 1

An asset manager of a hedge fund or a mutual funds is the one who directly handles the client money and is responsible for acting in an ethical manner while discharging their duties.

Some of the major ways in which asset managers breach their fiduciary duties are as follows :

(i) Asset Managers generally have access to private information of companies' profits, next business move, major public announcements which have direct effect on the stock price. In order to make their judgement about stocks right, fund managers use manupulative techniques to inflate stock prices with the help of insider information.

(ii) Fund managers in normal practice met out prefrential treatment to clients whose asset volume being managed is higher than the rest of the group. In this way only a group of clients gets all the attention of the fund manager.

(iii) Fund managers usually undertake complex financial transactions and disclose less of these to the clients and regulators.

(iv) Fund managers engage in activities which more oftem result in conflict of interest. Conflicts of interest can be in the form of raise larger funds when insufficient opportunities exist, taking over undisclosed and inappropriate risk in the investment etc.