A Sub-Advised Fund is an investment fund managed by one firm but whose portfolio management is outsourced to an external investment advisor.
In finance and wealth management, sub-advisory agreements allow asset managers to collaborate, combining internal capabilities with external specialization. The primary fund manager remains the fiduciary responsible for the overall governance and compliance but relies on the sub-adviser for tactical or discretionary management. This setup is common in mutual funds, managed accounts, and family office portfolios seeking diversification through specialized management.
Moreover, sub-advisory relationships impact investment reporting and tax planning since multiple management entities may generate different tax events or require coordinated reporting. The arrangement requires clear contractual terms and robust oversight by the primary manager to ensure alignment with the family office’s investment policies, risk tolerance, and compliance requirements, reinforcing governance frameworks and fiduciary responsibility.
A family office invests in a mutual fund that outsources the management of its emerging market equities segment to an external specialist firm under a sub-advisory agreement. The sub-adviser decides on stock selection, sector allocation, and trading within the agreed mandate. If the emerging market portion is 30% of the fund’s assets and grows from $30 million to $33 million over a year, it contributed a 10% return, directly influencing the overall fund performance proportionally.
Multi-Manager Fund
A Multi-Manager Fund uses multiple external managers to oversee different segments or strategies within a single fund structure, similar to how sub-advised funds delegate portfolio management but often with multiple sub-advisers involved collectively.
What is the main difference between a sub-advised fund and a directly managed fund?
A directly managed fund is managed entirely by the primary investment firm’s internal team, whereas a sub-advised fund delegates portfolio management responsibilities to an external investment advisor under a contractual agreement.
How are fees structured in a sub-advised fund?
The primary management company pays the sub-adviser a portion of the management fees or a separate fee for investment services, which may affect the fund’s overall expense ratio and needs to be considered in fee analysis.
Does a sub-adviser have full discretion over fund decisions?
The sub-adviser operates within the parameters set by the primary manager and fund guidelines; while they have discretionary authority over investments, the primary manager retains ultimate responsibility and oversight.
