The Supreme Court ("Court") has ruled that an investment fund's ("Fund") articles rather than its investor marketing presentation or fact-sheet (together, "Marketing Materials") delineate management's authority regarding Fund investment strategies.
The case evolved around the claim of certain Fund partners that the Fund improperly deviated from the investment model ("Investment Model") presented in the Marketing Materials provided to them before they joined the Fund. Notwithstanding the strategy presented in the Marketing Materials, after witnessing US stock market volatility, the Fund's manager decided on his own initiative and without advising the partners to change the Fund's investment strategy to a higher-risk model. Following this decision, the Fund suffered heavy losses.
The Court noted that the Marketing Materials specifically stated that they contained partial information only and were qualified by the Fund's articles, which was to be the only binding legal document governing the Fund's obligations to its partners. The Court also observed that the objective of the Marketing Materials was to highlight Fund manager experience with a particular Investment Model, rather than to commit the Fund to a particular strategy, The Court noted that although the Investment Model was intended to be the Fund's central investment strategy, the Fund was not obligated to maintain this model and indeed had broad discretion with respect to the nature of its investments.
The Court held that neither the Fund nor its management breached their obligations to the partners on account of investments that varied from the Investment Model. In addition, the Court held that the Fund was not negligent for selecting higher-risk investments.
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