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Qualified Professional Asset Manager (QPAM) Definition
A qualified professional asset manager is a designation for a registered investment advisors who work with or manage retirement fund assets. QPAM status is an exemption from the restrictions that the Employee Retirement Income Security Act (ERISA) places on transactions involving retirement funds.
A Little More on Qualified Professional Asset Manager Status
The requirements to be a QPAM are listed by the Department of Labor in the Prohibited Transaction Class Exemption Section 84-14. To qualify, an investment adviser must:
- Be a bank, savings and loan or insurance company with equity capital or net worth in excess of $1 million;
- Be an investment adviser registered with the Securities and Exchange Commission pursuant to the Investment Adviser Act and manage or advise an investment fund with at least $85 million in assets and shareholders’ or partners’ equity in excess of $1 million;
- Act as a fiduciary for the client (fund investors); and
- Not have been previously convicted of a felony affecting trust management.
Remember, this exemption is only relevant to funds holding retiree fund assets (defined contribution or defined benefit funds).
ERISA prohibits an investment adviser from entering into transactions involving fund assets (pursuant to Section 406(a)) with any party that has an interest in the plan, such as plan sponsors of other fiduciaries (such as investment or accounting firms). A Qualified Professional Asset Manager is permitted to enter into certain types of otherwise prohibited transactions including sales, exchanges, leases, loans/extensions of credit and the provision of services between a party of interest and a pension plan.
There are still prohibitions against the QPAM entering into transaction with itself or with other parties that may have the power to influence the QPAM. More specifically, the other party to the transaction cannot be a related to the QPAM or to a fiduciary who appointed/hired the QPAM. This would still be a breach of fiduciary duty.
References for Qualified Professional Asset Manager
Academic Research on Professional Asset Manager
THINKING ABOUT LEVERAGING PLAN ASSETS? THINK SOME MORE: UBTI AND PROHIBITED TRANSACTIONS, Hales Jr, H. E. (2004). Real Property, Probate and Trust Journal, 541-559. This paper examines leverage in terms of qualified plans and notably the author explains whether the leveraged investments will expose an adequate plan to tax liability on unrelated business taxable income and also whether the investments will abuse the provisions set forth by the Internal Revenue Code and ERISA.
Pension Fund Real Estate Investments: The Role of the Qualified Professional Asset Manager (QPAM): A Primer for Trustees., Iezman, S. L., & Darling, S. W. (2000). Employee Benefits Journal, 25(1), 32-36. This article focuses on the need for trustees of pension plans to ensure that their real estate investment managers are qualified professional asset managers (QPAM) under the Employee Retirement Income Security Act (ERISA) of 1974. It also investigates the responsibilities of a trustee as stipulated in ERISA and the guidelines to be followed in minimizing a trustee’s liability.
ERISA issues in pension fund real estate investments, Martin, A. M. S., & Saxon, S. M. (2004). Groom Law Group, Washington, DC. This article presents the various issues of ERISA when it comes to pension funds in real estate investments. Such issues include General Fiduciary Obligations where a fiduciary controls the assets and provides investment advice. Another issue is the prohibited transaction between a plan and a party in interest.
ERISA for securities professionals, Matta, R. K. (2004). Journal of Investment Compliance, 5(1), 69-83. This paper presents a general overview of how ERISA, as amended, applies to security professionals such as the registered investment advisers and the registered broker-dealers who have an obligation of advising, managing or trading of investment portfolios of employee benefit plans under ERISA.
Private Fund Side Letters—Investor Agendas, Tactics and Disclosure, Mannon, J. M., & Blatherwick, N. M. This article examines side letter agendas for various investors, negotiation tips and tactics, regulatory considerations and the disclosure of the best practices. These side letters are further described as separate agreements that are used to supplement or change the terms of the governing documents of a private fund. The side letters desired by investors vary depending on the investor type.
Plan Assets and Selected Prohibited Transaction Exemptions under the Pension Protection Act, St Martin, A. M. (2007). ALI-ABA Bus. L. Course Materials J., 31, 33. This paper states that for Congress to give attention to the retirement security, some factors must be responsible and they may include the collision of declining stock market values, low interest rates, and a decline in the use of DB plans among many others. This paper mainly focuses on the plan assets and selected prohibited transaction exemptions under this act.
Managing Risk and Creating Value in Real Estate Investments: The Importance of Due Diligence, Iezman, S. L., & Peterson, S. R. (2000). Prob. & Prop., 14, 13. This study presents an overview of the risk management process and extends it to the commercial real estate. This study approaches real estate as a set of assumptions instead of focusing on it as a tangible asset. It identifies three levels of risk exposures and also three risk management approaches. It then discusses the importance of due diligence as a tool of risk management for real estate.
Enhancing a mature investment program: customizing the captive hedge fund, Wider, J., & Scanlan, K. (2005). Journal of Investment Compliance, 6(1), 23-30. This research presents some essential issues that must be addressed in conjunction with the structuring and formation of a customized hedge fund program. It also discusses why various institutional investors opt for alternative investments that allow for the establishment of dedicated and captive hedge programs. The research also introduces the issues that need to be fixed in connection with these programs.
Fund Investing: What to Ask for and How to Ask for It, Gillman, P., & Widlus, H. (2006). Compensation & Benefits Review, 38(4), 34-43. This paper encourages investors to evaluate the background of financial professionals they want to do business with before handing over their money. It also provides a wide range of questions that they should ask about the investment products and ways of monitoring their investments and handling problems.
Spotting ERISA Issues in Mortgage Loans, Desmond, L. R., & White, C. D. (1996). Prob. & Prop., 10, 58. This paper investigates the various techniques that can be used to identify the Employee Retirement Income Security Act (ERISA) issues in mortgage financing. It is used primarily to safeguard the pensions of employees. The paper also provides various ways of addressing these issues.
A’Clear’Guide to Swaps and to Avoiding Collateral Damage in the World of ERISA and Employee Benefit Plans, Rabitz, S., & Oringer, A. L. (2016). Deane School of Law. This paper resolves various issues that may be considered by money managers, broker-dealers, retirement and other employee benefit plans as well as other investors when deciding on swap transactions for employee benefit plans, other identical policies, and plan assets entities that are subject to ERISA or corresponding provisions of the US tax code.