Qualified Professional Asset Manager (QPAM)

A qualified professional asset manager is a registered investment advisor that helps institutions like pension funds make investments.

The criteria for qualifying as a QPAM are defined by the Employee Retirement Income Security Act (ERISA). Regulated institutions such as banks and insurance companies may qualify as a QPAM. Under amendments that came into effect in August 2005, a QPAM is also defined as a registered investment adviser with client assets under management of at least $85 million, and shareholders' or partners' equity in excess of $1 million.

The QPAM exemption is widely used by parties who conduct transactions with accounts holding retirement plan funds. Essentially, the QPAM exemption allows an investment fund that is managed by a QPAM to engage in a wide range of transactions that would otherwise be prohibited by ERISA with practically all parties in interest such as plan sponsors and fiduciaries. However, such transactions cannot be entered into with the QPAM itself or with those parties that may have the power to influence the QPAM.

One big role for QPAMs is representing pension plans when they want to engage in private placements. Their role is to vet the private placement. Qualified professional asset managers may also assist institutions with investments in real estate or other nontraditional or alternative investments.

A Qualified Professional Asset Manager may make a transaction that would normally be prohibited under ERISA (section 406(a). Such transactions may include sales, exchanges, leases, loans/extensions of credit and the provision of services between a party of interest and a pension plan. Using a QPAM can remove the risk of trustees being held personally liable for errors as long as they utilize the QPAM prudently. However, using a QPAM in not a shield for breach of fiduciary duty.

The qualifications for a Qualified Professional Asset Manager are codified in Prohibited Transaction Class Exemption 84-14 issued by the Department of Labor. They are:

• The QPAM must be a bank, savings, and loan or insurance company with equity capital or net worth in excess of $1 million of a registered investment adviser with assets under discretionary management in excess of $85 million and equity in excess of $1 million.
• The counterparty must not be the QPAM or related to the QPAM or to the fiduciary appointed the QPAM (i.e., decided to invest in the fund).
• The asset manager must represent in writing to the client that it is acting as a fiduciary.
• The QPAM must negotiate the terms of the transaction and decide on behalf of the plan whether to engage in the transaction.
• The QPAM may not have been convicted of certain activities that could bear on financial trust.