The Investment Research Partnership

Expert Witness Case Study 1

Trustee controlled portfolio losses more than 45% in value in under two years.

Case summary.

A trust fund with a substantial single premium invested at outset was reduced by more than 45% in less than two years even though the beneficiaries were retired, required a modest income and with capital guaranteed.

The solicitors instructions.

The solicitor for the beneficiaries requested a review of the manor in which the current investment manager had acted over a period of three years. The trustees had changed investment managers because previous managers could not guarantee the level of the income going forward but were producing income at a level only slightly below what was requested.

Within a short period, the new investment manager started to lose money on the capital value and the income level proposed was never meet.

The investigation.

The instructions to the expert witness were to

a) review the assets purchased by the investment manager

b) look at suitability

c) calculate capital losses

d) compare the investment manager returns to a suitable benchmark.

The above requests were duly under taken. In the process of reviewing the case notes and investment reports, the expert was able to suggest that the instructions be extended to include:-

1) a review of the initial beauty parade (if one took place)

2) a review of the instructions given to the investment manager by the trust company

3) a review of what monitoring was carried out by the trust company

4) documented procedures for monitoring the investment manager

5) action to be taken if the investment manager failed to meet the objectives and/or risk parameters of the trust

The Expert’s report.

The investigation showed that although the assets held were not suitable for the trust’s objective and risk requirements, the investment manager had acted within the parameters the trust company had instructed them to follow.

However other shortcomings were found. The trust company had failed to properly instruct the investment manager with regards to the objective of the trust, the requirement for capital preservation and the risk level that should apply.

The trust company also failed to monitor the investment manager and, when the trust company did comment on the losses, failed to taken action against the manager to minimise future losses.

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