Topic 9: Addressing Potential Conflicts in Multi‑Manager Teams

Introduction

Have you ever felt that moment of tension when two different people on your team, both equally capable, want the same resource at the same time? Maybe it’s something as simple as a limited seat at a conference or as high-stakes as an oversubscribed initial public offering (IPO) for clients. In large asset management firms, such scenarios happen all the time—just multiplied by a thousand. Multiple managers, multiple strategies, multiple priorities. If you think about it, it’s a recipe for potential conflicts, right?

This part of the Code’s guidance (under the Asset Manager Code of Professional Conduct) aims to show you how to handle these tricky scenarios with grace, fairness, and compliance. We’ll explore conflicts that can surface in multi‑manager setups, ways to handle inside information, the importance of documented policies, plus practical cases you can totally bump into in real life. Let’s dig in.

Identifying Multiple Roles and Interests

In a multi‑manager environment, each manager or team often serves its own strategy or client base. One portfolio might focus on growth equities, while another might be all about emerging market debt—yet they share the same overarching “umbrella” of an asset management firm. When you have multiple managers in the same organization, friction can occur around resource allocation. For example:

• Research analysts might spend more time on strategies favored by certain star managers.
• A hot IPO may be pursued by several teams simultaneously.
• Client onboarding teams could funnel more prospective clients to higher-fee strategies.

I recall a time, back in my own fund management days, when our firm had a small but outstanding quantitative desk that every portfolio manager wanted to consult. We literally had to prioritize who got their attention first, especially during earning seasons. It caused a bit of internal friction—some of us felt left behind. This might seem harmless, but repeated imbalances can lead to real conflicts. And from an ethical standpoint, you want to ensure every client gets the fair treatment promised under the CFA Institute Standards (refer to Chapter 2, particularly Standard III: Duties to Clients).

Clear Allocation Policies

Let’s be honest: implementing rigorous, documented policies might sound kind of boring. But it’s the bedrock of fair dealing. In a multi‑manager environment, everything from available IPO shares to coveted bond issues must be allocated based on preset rules and frameworks.

• Document: There needs to be a robust trade allocation policy that states exactly how limited opportunities—like oversubscribed IPOs—are split among various portfolios. This typically involves pro rata allocations or a rotation-based system.
• Communicate: Ensure all staff across different shelves of the organization know these rules. Knowledge breaks down a lot of “us vs. them” mentality.
• Monitor: Regularly track how these allocations are distributed. If you see patterns of favoritism or consistent under-allocation for a certain manager, that’s a glaring signal to investigate.

Let’s visualize this concept in a simple flowchart:

    flowchart LR
	A["Identify Potential Conflicts"] --> B["Evaluate Resource Allocation"]
	B["Evaluate Resource Allocation"] --> C["Implement Trade Allocation Policies"]
	C["Implement Trade Allocation Policies"] --> D["Monitor Ongoing Compliance"]

Quick Example of Clear Allocation

Imagine we have three portfolios—Growth, Value, and International—seeking a hot new IPO with only 6,000 shares available. Here is how a pro rata method might look:

The policy states that all managers requesting shares are allocated proportionally to what they request. This helps ensure fairness and transparency.

Guardrails for Inside Information

Speaking of hot IPOs, guess what else you must be mindful of? Yep, inside information. A multi‑manager firm that invests across asset classes has a ton of data points—some might be material non‑public information. Perhaps the real estate team has learned about a pending large-scale property acquisition that could influence related public REITs.

Information Barriers (Chinese Walls)

• Physical separation: Different teams are located on different floors or in separate spaces.
• System restrictions: Access rights to certain deal folders or research data are limited.
• Ongoing training: Everyone needs to be aware of red flags and compliance protocols.

You might hear this referred to as maintaining a “Chinese wall”. The goal is to ensure that one desk (say, Mergers and Acquisitions) doesn’t unwittingly tip off others within the same firm about a major pending deal. While physical separation can help, it’s the cultural and operational training that truly makes a difference.

Scenario Planning

People often overlook scenario planning, but it’s so important—especially when resources are tight and managers are forced to compete. So how do we plan for a scenario where two managers within the same firm want the same limited resource? Let me paint an example:

You have Portfolio Manager A, focusing on emerging markets, who believes company XYZ based in Southeast Asia is a breakout star. Meanwhile, Portfolio Manager B, focusing on global growth, sees the same opportunity, but invests for a different client base with a narrower risk tolerance. Both want in—big time. However, the shares are limited. Who gets first dibs on that block trade?

Scenario planning might establish:
• Priority ranking based on the fund’s investment charter or client’s guidelines.
• Pro rata distribution as in our earlier table.
• A rotation-based system across time.

One technique is an internal “conflict resolution” committee. This group of senior officers, compliance specialists, and risk managers meets quickly—often with a strict timeline—to decide on the allocation or priority approach, based on policies laid out in the firm’s procedure manual.

Practical Case Study: Growth vs. Value Duel

Picture the following case:

• Manager Rahul runs a Growth Equity fund with an aggressive style.
• Manager Jada runs a Value Equity fund focusing on stable dividend payers.
• A new set of preferred shares is available in limited quantity, and both believe it fits their respective mandates.

Rahul claims the Growth Equity fund “deserves more shares” because it has grown AUM by 30% in the last year, thanks to positive performance and new inflows. Jada says her Value fund’s older clients have been starved of good yield opportunities. Both have valid arguments. A few insider tips might also surface if Rahul has been chatting with the firm’s credit research group. The only way to keep this fair is to revert to the documented trade allocation policy (consistent with the firm’s approach to limited investment opportunities), while also respecting that some client mandates might have priority constraints or risk budgets. The firm’s policy document is the tie-breaker, not personal persuasion.

Best Practices for Multi‑Manager Environments

• Implement robust compliance training: People sometimes forget how easily a slip of inside info can compromise the firm.
• Regular auditing: Bring in internal or external auditors to verify that managers are adhering to the allocation policy. Spot-check allocations and ask managers to explain them.
• Transparent reporting: Provide summary reports to all managers so they can see how shares or resources were allocated.
• Clear investment guidelines for each strategy: If it’s not in a manager’s mandate, they have less standing to claim certain resources.
• Encourage open dialogue: If conflicts arise, managers should be able to escalate them quickly to a compliance or senior oversight team.

Ongoing Monitoring and Enforcement

So you’ve set up all these policies. Great. But the big question is: are they followed, or are they just words on a piece of paper? Ongoing monitoring is essential. This usually involves:

• Trade blotter reviews: Check that actual trades match the policy.
• Periodic compliance certifications: Manager sign-offs go a long way in accountability.
• Whistleblower or “speak-up” lines: Provide safe channels where employees can report suspicious activity without fear of retaliation.

Remember from Chapter 1.2 (The Disciplinary Review Process) that the CFA Institute’s Professional Conduct Program can come knocking if members or candidates stray from these standards. So consistent enforcement is not just optional—it’s crucial to maintaining your professional reputation.

Common Pitfalls

• Over-reliance on “unwritten” rules or historical precedents. If it’s not documented, it doesn’t exist in the eyes of compliance.
• Insufficient training: Managers might shrug off the inside information rules as “legal stuff,” which is a big mistake.
• Inconsistent enforcement: If favoritism or star manager syndrome sets in, you’ll lose trust and face potential regulatory scrutiny.
• Neglecting cross-border issues: If your firm spans multiple jurisdictions, pay attention to subtle differences in local regulations.

Key Takeaways and Exam Tips

• Fairness is paramount. That’s a central theme in the CFA Institute’s Standards of Practice (especially Standard III: Duties to Clients).
• Document and communicate your trade allocation policy so everyone knows the ground rules.
• Chinese walls (information barriers) aren’t just a neat phrase; they’re a vital operational mechanism for ensuring safety around material non‑public info.
• Ethical dilemmas in multi‑manager setups often revolve around limited investment opportunities and resource sharing.
• For the exam, expect scenario-based questions where multiple managers are vying for the same resource. Show how you would align with a documented policy and maintain fairness.
• Don’t forget that exam questions might test your ability to identify hidden conflicts, such as a senior manager leveraging inside info from another department.

Glossary

• Multi‑Manager Environment: A setup in which multiple investment managers or teams operate under one firm, sometimes sharing resources and research.
• Chinese Wall (Information Barrier): Policies or physical/system barriers to block material non‑public information from being shared inappropriately.
• Trade Allocation Policy: A documented set of guidelines for distributing limited investment opportunities among various portfolios.
• Limited Investment Opportunity: An investment with finite availability. Common examples include IPOs or specialized bond issuances.

References and Further Reading

• Bazo, D., & Scherer, M. (2021). “Managing Conflict of Interest in Multi‑Manager Portfolios.” Portfolio Compliance Journal.
• CFA Institute. (2020). “Fair Dealing: Standards and Guidelines in Multi‑Client Scenarios.”
• See also Chapter 2.8 (Common Pitfalls and Violations) for additional examples of how multi‑manager conflicts can arise.

Test Your Knowledge: Addressing Conflicts in Multi‑Manager Teams