Qualified Professional Asset Manager (QPAM)
What it is:
How it works/Example:
The Employee Retirement Income Security Act of 1974 (ERISA) sets the requirements for becoming a QPAM. Generally, QPAMs must be RIAs (meaning they are properly licensed as investment advisors with the Securities and Exchange Commission) with at least $85 million of assets under management and at least $1 million of partners' or shareholders' equity. Banks, insurance companies, and other regulated institutions can become QPAMs.
QPAMs generally represent pension plans when those pension plans want to partake in private placement transactions. The QPAM's primary job is to vet the private placement on behalf of the pension plan. QPAMs also might help plans invest in real estate or other nontraditional investments.
Why it matters:
When an investment fund or a retirement plan is managed by a QPAM, it can engage in transactions that ERISA usually prohibits. Additionally, because ERISA imposes significant fiduciary duties on pension plan trustees, hiring a QPAM eliminates the risk of trustees being held personally liable as long as they hire a QPAM prudently. However, the investment funds or retirement plans cannot engage in transactions with the QPAM itself or with parties that influence or control the QPAM.