Strategic relationship agreements: Better returns through better relationships

Institutional investors increasingly seek the ability to access a diversity of investment manager products as well as the ability to move swiftly among those products to maximise risk-adjusted returns as market conditions change. Yet larger investors, like public pension funds, that might have the most ability to dictate terms and access tend to have slow, onerous governance structures, hampering their ability to make optimal use of the clout that their size and prestige might otherwise allow. This paper will explore an innovative contractual relationship that can provide such investors with favourable economic terms as well as agility to move across a broad spectrum of a manager’s products and capabilities. These Strategic Relationship Agreements (SRAs) also provide the manager with easier, quicker access to the investor’s capital, and enhanced ability to meet the precise needs of the investor, in the moment. An SRA is not for every investor. Nor is it for every manager relationship, even for those investors who choose to employ SRAs. But it can be used to great effect when the conditions are right and when implemented properly. This paper will explore the history of SRAs — why and how they have been used — as well as the key factors that may make an SRA the right vehicle for an investormanager relationship, and the indispensable elements that allow an SRA to work as designed. The authors recommend that large, sophisticated investors strongly — but carefully — consider SRAs to help them meet their goals and needs.