There are a number of issues that can raise important questions, questions that are material enough to warrant more attention than ordinary monitoring or, stated differently, important enough to place the investment on the watch list. Among the most critical are:

The portfolio manager and the investment firm were initially selected for a reason. Has that changed? Was the investment firm or portfolio manager selected for its reputation? Has something changed such that the initial reason for selection may no longer be valid?
Has the individual portfolio manager (or a lead portfolio manager of a team) left the firm? Obviously, the greater the influence of the departed manager over the investment strategy or investment selection, the greater the potential impact of the departure.
Has there been significant change or turnover in the investment firm's staff –and particularly among the analysts and portfolio managers? While the individual portfolio manager may be the face of the organization, a successful investment program is dependent on its analysts and support team. Departures and turnover can adversely affect the firm's investment process.
Have there been substantial outflows from the investment? Material changes to the amounts invested — and particularly outflows — can be disruptive to the portfolio manager's investment process and may result in the liquidations of investments at inopportune times. Those events may adversely affect the investment results for the participants.
Are there regulatory investigations of the investment firm? An examination by a regulator, such as the Securities and Exchange Commission, may or may not reflect any wrongdoing. But, until the outcome is known, there is some risk. Also, the investment firm will need to devote resources to the examination, which may be a distraction from the portfolio management.

Putting an investment on a plan's watch list is only the beginning of a prudent process.

Instant Insights /

When plan investments land on watch lists

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