Introduction

In the financial industry, money managers often face ethical dilemmas. One prevalent issue involves tying a

portion of their compensation to the performance of the portfolios they manage. This practice raises

questions about conflicts of interest, fiduciary responsibilities, and the potential for short$-$term

decision$-$making that may not align with the best interests of investors. This case study explores the ethical

considerations surrounding such compensation structures.

Salim is a seasoned money manager working for a prominent investment firm. As part of his employment

contract, $20\%$ of his annual compensation is tied to the performance of the portfolio he manages. The firm's

compensation structure incentivizes money managers to achieve high returns, aligning their interests with

those of the investors. However, Salim begins to face an ethical dilemma.

Discussion and Analysis

Scenario $1$: Short$-$Term vs$.$ Long$-$Term Decision$-$Making

Salim noticed that his portfolio has been underperforming the market benchmark for the year. Facing

pressure to boost performance and secure his bonus, he considers making short$-$term, high risk investment

decisions to generate quick returns. However, he knows that such actions may not be in the best long$-$term

interest of his clients.

Scenario $2$: Concealing Information

As the end of the fiscal year approaches, Salim discovers an impending market downturn that could

adversely impact the portfolio's performance. He faces the dilemma of disclosing this information to his

clients or attempting to minimize the negative impact by strategically adjusting the portfolio, potentially

risking his bonus.

Scenario $3$: Fiduciary Duty vs$.$ Personal Gain

Salim's fiduciary duty to act in the best interests of his clients conflicts with his desire to maximize his

compensation. He is torn between making decisions solely based on what is best for the clients and

succumbing to the financial pressure to secure a larger bonus.

Explain and illustrate in detail the ethical, responsibility, and sustainability considerations for the portfolio

manager.

Assessments

Students will be assessed based on the following:

Analysis of the Case Study by identifying and defining the main issues or problems presented in the case

study, applying relevant investment principles to analyze the case effectively, and considering multiple

perspectives and potential solutions.

Communication and presentation are achieved by clearly and coherently presenting ideas and analysis in a

written format, organizing the content logically$,$ with a clear structure and flow of ideas, and using

appropriate terminology and language.

Quality of Recommendations by providing well$-$founded recommendations based on the analysis

conducted, offering actionable and realistic suggestions for investment decisions or strategies, and

considering potential trade$-$offs between risk and return and implications of the recommendations proposed.

Ethical considerations relevant to the case study include conflicts of interest, insider trading concerns, or

social responsibility issues.