What are the characteristics of the prudent investment principle
The prudent investment principle means that the investment scale should be compatible with the company's asset scale, asset-liability level and actual financing ability. For the convenience of everyone, let's take a look! Let's share with you the characteristics of the prudent investment principle. Welcome to read!
what is the principle of prudent investment
the principle of prudent investment means that the investment scale should be adapted to the enterprise's asset scale, asset-liability level and actual financing ability.
the content of the principle of prudent investment
(1) The need for attention
That is, before investing, the trustee should pay reasonable attention to the safety and profitability of the invested object, and if necessary, ask for the opinions of Kongheng Zhi for reference. If the trustee does not pay due attention to the investigation or the investigation, or if the investigation shows that he can't invest, he should be liable for the losses caused by the investment. If the trustee has done his best to make a full investigation and there is nothing wrong with his investment, he can be exempted from liability even if there is damage.
(2) Skills need
The trustee should have skills suitable for the investment behavior he is engaged in, otherwise, he should be responsible for the investment loss.
(3) The need for prudence
The trustee should act cautiously, that is, in a reasonable way, such as diversifying investment, to obtain reasonable income and try to avoid speculative behavior.
The investment behavior in the securities market is directly related to the immediate interests of investors, especially there is a big crisis in the stock trading behavior. Investors who are not fully prepared, including psychological preparation, had better not get involved easily.
the prudent investor rule contains
(1) objectivestandard. That is to say, the trustee should have the corresponding degree of attention, professional skill level and prudential standards, fully consider the trust purpose, terms, decentralization requirements or other requirements, and implement investment and management of the trust property as a prudent investor, and different trustees should bear different prudential standards for investment. For example, the standard of prudence applicable to professional investment managers (such as fund managers) should obviously be higher than that of general investment managers (such as family member trusts).
(2) portfoliostandard. Article 2 (b) of the law requires that the investment and management decisions of the trustee's individual assets should not be evaluated in isolation, but should be judged in the context of the whole trust investment portfolio and as a part of the whole investment decision that the crisis and return objectives are in line with the trust. Therefore, a single investment in the trustee, even if it is not prudent for the trust property, can be regarded as a prudent investment if there is a reasonable connection between the investment and the investment portfolio.
(3) Factors that should be considered in investment decision. Article 2 (c) of the Law lists a series of important factors that the trustee must fully consider when making investment decisions, including general economic conditions, inflation or deflation, tax consequences, the effect of each investment behavior on the whole investment portfolio, the overall expected return of trust income and principal, the impact on income during the investment interval, the liquidity and maintenance of capital, and the reasonable expenses borne by trust management.
(4) the limitation of investment projects and their decentralized investment. Article 2 (e) of this law holds that no investment project is absolutely imprudent in nature, so it is regulated that the trustee can invest in any form of assets under the premise of following the prudential standard. At the same time, Article 3 of the Law requires the trustee to adopt decentralized investment unless he can reasonably prove that it will not be conducive to the realization of trust investment objectives under certain circumstances.
(5) Requirements of input cost. Article 7 of the law stipulates that when investing in and managing trust property, the trustee has the responsibility to minimize the investment cost when designing and implementing the investment strategy according to the characteristics of trust assets, the purpose of trust and the skills of the trustee.
(6) criterion. Article 8 of the law stipulates that whether the trustee has followed the rule of prudent investor should depend on the facts or conditions when the trustee makes decisions or takes actions, and can not be judged according to the results afterwards. That is to say, this criterion should be a criterion before or during the event, not after the event.
characteristics of the prudent investor rule
from the critical contents contained in the prudent investor rule, we can find that the biggest feature of the rule is that it absorbs and applies the essence of modern investment ModernPortfolioTheory (hereinafter referred to as MPT) in the standard design. MPT was initiated by Macovei, a famous American economist, on the basis of the existing investment portfolio theory and Keynesian preference and analytical methods, and published the article PortfolioSelection in the American Financial Journal in 1952 by using the methods of probability theory and linear algebra, and was completely formed by several scholars. MPT believes that the crisis and expected return of different securities in the securities market are different, so the crisis situation when securities are considered separately can be changed through the portfolio design of securities. For example, an investment project with high crisis (such as speculative nature) in a portfolio may be negatively correlated with other investment projects in the portfolio, or even offset each other, thus reducing the overall crisis level of the portfolio. At the same time, when MPT advocates portfolio investment, it also advocates decentralized investment, that is, try to maintain the universality of investment projects in the portfolio and minimize the non-systematic crisis.
because according to MPT, as the correlation coefficient (or covariance) between the profitability of assets included in the same portfolio decreases, the variance (or standard deviation) of the profitability of the investment portfolio also decreases. In short, reasonable diversified investment can reduce the portfolio crisis without reducing the expected rate of return. Facts have proved that the portfolio investment and decentralized investment advocated by MPT are effective.
The formation and influence of the prudent investor rule
Since the 196s, this theory has quickly become the mainstream theory in the investment field, not only an essential tool for investors to analyze securities investment, but also an urgent basis for countries to implement the legislation of trust investment rules.
It is against this background that the prudent investor rule in the United States was promulgated. As mentioned in the preface of the Uniform Prudent Investor Law, "The trust investment industry has undergone profound changes since 196, and the purpose of the Uniform Prudent Investor Law is to update the investment law to reflect the ever-evolving business needs. The amendments made in this bill are based on the widely accepted results of a large number of theoretical and empirical studies over the years, which are often referred to as MPT. " Indeed, looking at the Law of Unified Prudent Investors, a large part of the whole article is designed around the requirements and methods of MPT's combined investment and decentralized investment, which reflects the objective law of modern securities investment field and makes the regulation of the bill accurate and rational with the help of economic theory.
The formation of the prudent investor rule in the United States has gone through a long evolution process, which includes two stages: the "legallist”statutes and the prudentpersonrule. In the early days, it was urgent for American States to restrict the types of trustee's investment by transplanting Britain's "statutory investment table" The legal effect of the statutory input form can be divided into two types: mandatory and permissive. The former is protected by law as long as the trustee invests in the two listed in the legal investment table, otherwise it constitutes a breach of trust and should be liable for damages. As for whether the trustee performs the duty of care in the investment, it is different; The latter only assumes that the trustee has violated the fiduciary duty, but the trustee can prove that he has done his duty of care to overturn this presumption. Although the statutory investment table can ensure the safety of the principal, it is easy to cause the rigidity of the investment method and the conservatism of the investment object. As the trustee actually fails to pay full attention to the investment items in the table, the statutory investment table encourages and connives at the trustee's passive attitude towards trust investment. Moreover, on the question of what is the appropriate input, the legal input table replaces the trustee's market judgment with the judgment of the judiciary or the legislature. Whether this practice is scientific and reasonable has aroused great doubts.
in p>183, the famous case "HarvardCollegeV.Amory" in Massachusetts High Court of the United States began to break through the "statutory input table" and became the origin of prudent man rule. In this case, the court found that as long as the trustee invested in good faith, it was legal to invest in private securities (at that time, the statutory investment table only allowed investment in government securities), and put forward prudent man rule, that is, "the trustee should be cautious and faithfully when engaging in investment business, and manage the trust property as a prudent, temperate and wise person manages his own property, not for the purpose of speculation, but for the purpose of speculation. The case reveals two criteria for judging the trustee's compliance with prudent man rule: first, the actual standard of safe investment requires the trustee to deal with the trust property for a long time with the concept of investment rather than speculation, and at the same time consider the safety and profitability of investment; Second, procedural standards, that is, when implementing investment judgment, the trustee should abide by the universal standards of prudent people handling their own affairs.
However, the rules and standards summarized in this case were not taken seriously by most state legislatures for a long time, except for a few states, and the "statutory input table" still became the critical rule for regulating trustees in most states in the United States. It was not until 194, with the joint promotion of banks and fund circles all over the United States, that the legislatures and courts in most states in the United States gradually abandoned the statutory investment table and adopted the prudent man rule, making it a critical standard to define the trustee's investment responsibility. However, with the gradual relaxation of financial control in the United States and the progress of domestic financial innovation since 197s, prudent man rule was too cautious about individual investment projects, which was contrary to the integrity of investment portfolio advocated by MPT, and was quickly criticized and criticized by most scholars. For the fund industry, according to this rule, if the fund manager does not fully demonstrate the rationality of each investment before investing, then even if the entire portfolio investment performs well, it must be responsible for the poor effect of the investment. Obviously, it is more reasonable to use this rule as a duty of care to measure whether fund managers are fully committed, which is easy to suppress the innovation of fund investment means and methods, and is not conducive to the development and cultivation of fund managers' investment potential and enthusiasm.
in view of the above disadvantages of prudent man rule, the American pension fund law-Employee Retirement Income Security Act, which was promulgated in 1974, took the lead in learning the MPT principle, and adopted a different expression from that of prudent man rule, which not only allowed fund managers to diversify their investments, but also agreed that they could invest in corporate securities with poor earnings prospects when the income of the whole investment portfolio allowed. It can be seen that this specification has a strong MPT trace. However, it was not until the 199s that the trust law in the United States finally came to its full fruition, and MPT was formally and comprehensively absorbed to transform the traditional prudent man rule, thus forming a more systematic "cautious investor rule" today.
Compared with prudent man rule, the prudent investor rule pays more attention to the prudence of the whole portfolio, rather than the crisis of a single security. Therefore, as far as the fund industry is concerned, fund managers do not need to fully demonstrate the prudence of each kind of securities in their investment, so that fund managers have greater investment discretion than before.
on the surface, the duty of care of fund managers seems to be weakened, but in fact, the standard of care of fund managers in using fund property is improving. Because the information and skills needed to evaluate the prudence of the whole portfolio are obviously far more than that of a single security, fund managers must synthesize and weigh the crisis correlation, expected future returns, correlation with other asset portfolios, transaction costs, asset liquidity and other relevant information of various securities in the portfolio.
moreover, in terms of operation and management, fund managers can invest in any kind of securities without being constrained by a single securities crisis, but in practice, they must be constrained by the crisis of the whole portfolio. Obviously, fund managers can't "do whatever they want" as people think. At the same time, as a defaultrule, the prudent investor rule can be expanded, restricted, deleted or modified in other forms by trust deed, and the modified investment instructions and restrictions are still legally binding on fund managers. Furthermore, the prudent investor rule strengthens the legal obligation of decentralized investment. Unless the situation is extremely special, the fund manager cannot choose or refuse to implement it.
from the above point of view, the prudent investor rule perfectly coordinates the contradiction between the expansion of fund managers' investment power and the investment crisis. As some scholars in the United States believe, the prudent investor rule is giving the traditional rule of duty of care to fund managers a brand-new meaning. This brand-new meaning is to make the standard of care obligation of fund managers really rise to the standard of an investment expert, that is, fund managers should have high specialized investment skills, and their lack of ability and skills can not be used as the reason for investment mistakes. Because compared with the general trustee, fund managers, as professional institutions, have the advantages of funds, talents, information, research and other resources, and are fully capable of providing higher-level financial services. Of course, they should also bear a high degree of care obligations commensurate with their specialized work. The later case law in the United States also shows that the courts in most states have listed the combined investment and the diversified investment as one of the necessary conditions of the duty of care standard. Recently, the fund laws and regulations of more and more countries and regions have gradually accepted the practice of cautious investor rule, and made clear mandatory norms on investment portfolio and its dispersion.