Views on improving the integrity of global capital markets
11 April 2019

Ethics in Practice: Sovereign Development Fund. Case and Analysis–Week of 8 April

Check out the analysis to see how you did in analyzing this week’s case (8 April) and determining which CFA Institute Standard was involved.


After many years working for a large private equity (PE) firm in the United Kingdom, Adebayo, a CFA® charterholder, returns to his home country to take a position as CFO/CIO of his country’s Sovereign Development Fund (SDF or the Fund). The Fund’s goal is to benefit the local economy by financing local development projects that will generate high investment return to attract global investors as partners with the government through investment in the Fund. In that way, the capital deployed locally will have a leveraged impact on the economy and society. The Fund has a limited budget for professional staff, so Adebayo hires two junior analysts who have excellent professional credentials but who have not worked in the country.

Soon after taking the position, one of the country’s regional governors (who is also the leader of the country’s dominant opposition political party) strenuously advocates for the Fund to invest in a large mining project in an underpopulated and remote area of the country. The project will bring economic benefits to the governor’s region. At the same time, the country’s minister of finance, who hired Adebayo, is pushing for the Fund to invest in a large infrastructure project in an urban area that will create thousands of jobs for supporters of the political party currently in power.

In addition, former colleagues at the PE firm contact Adebayo and express interest in making a significant investment in the Fund. They ask to meet with Adebayo to get detailed information about the Fund’s current and future investment. The PE firm seeks assurances that the Fund will continue to follow an aggressive strategy to maintain high returns. After the PE firm makes a large investment in the fund, they ask Adebayo to give them regular updates on the Fund’s investment performance and financial health, on future government funding, and on the status of the Fund’s projects.

Choose one of Adebayo’s actions from the below choices and describe how it implicates the ethical principles and requirements of the CFA Institute Code of Ethics and Standards of Professional Conduct.

  1. Making hiring decisions for the Fund’s investment team.
  2. Investing Fund assets in the mining project as requested by the regional governor.
  3. Investing Fund assets in the infrastructure project as requested by the finance minister.
  4. Providing detailed information to former colleagues about the fund’s current and future investments.
  5. Providing assurances to the private equity firm that the Fund will continue to maintain high investment returns through an aggressive growth strategy.
  6. Providing regular updates on the condition of the Fund to a large private investor.


This case touches on several elements of the CFA Institute Code of Ethics and Standards of Professional Conduct (Code and Standards).

Hiring Decisions. The Code and Standards requires members to act with integrity and competence. Adebayo, himself an experienced CFA charterholder, seemingly meets this standard by hiring two junior analysts with excellent professional credentials to help manage the Fund. To be successful, the SDF personnel should have skills and expertise with global credibility consistent with building and maintaining investment partnerships so that co-investors are comfortable with the quality of the investment team running the SDF. It is crucial that the individuals be investment managers of the highest standing, and ideally, that they have a track record to back it up. A successful SDF should also have strong expertise in the local market to be able to source, assess, and structure investments in a credible way to provide confidence to co-investment partners that a return objective will be met. Ideally, the Fund would be staffed by qualified personnel with relevant education who have professional experience working in the locality. Adebayo, who has worked for years outside the country, might have considered seeking local expertise to enhance the competence of his team.

Investment Decisions. The Code and Standards require members to exercise diligence, independence, and thoroughness as well as to have a reasonable and adequate basis to support investment action. Adebayo has at least two different investment opportunities to choose from, each with its own benefits. The mining operations are likely to increase his country’s wealth and boost the economy; at that same time, they have the potential for robust return on investment. The infrastructure project will similarly boost the economy by providing long-term employment for thousands of workers. Either investment may be justified on its merits and achieve the goal of the Fund to have a positive socioeconomic impact. Clearly, however, the government champions of each project are placing political pressure on Adebayo. Adebayo must be resolute in maintaining his independence and objectivity to act in the best interests of the Fund and its investors and not be swayed by conflicts of interest resulting from outside influences or pressures. A successful SDF should have a robust and rigorous governance framework for making investment decisions that can stand up to global due diligence. Development orientation is not an excuse for a lack of rigor in investments. If the Fund is going to originate deals locally and attract co-investors, it needs to be able to prove that it will act in the investor’s best interest.

Transparency and Fairness. Two fundamental ethical principles embodied in the Code and Standards are transparency and fairness to investors. Adebayo can develop trust in the Fund on the part of potential investors through regular transparency and accountability to the co-investment community. It would be appropriate and reasonable for Adebayo to provide detailed information to potential investors, such as his former employer, so that they can conduct due diligence on the Fund. But Adebayo must be careful that he does not improperly disclose confidential information or material nonpublic information to potential investors. Furthermore, he must treat all investors fairly. It may be acceptable in some circumstances to regularly communicate directly with a particular investor, but all investors of the fund should be treated fairly and receive the same disclosures about the financial prospects and other information about the Fund, not just those with whom Adebayo has a close relationship.

Investment Mandate. The Code and Standards require CFA Institute members responsible for managing assets to a specific mandate, strategy, or style to take only investment actions that are consistent with the stated objectives. In the case of the Fund, Adebayo has a dual mandate to invest in projects that have beneficial socioeconomic impact as well as have a positive investment return. This mandate is different from traditional investment funds that focus only on return on investments regardless of outside impact. A successful SDF will have a clear, commercial mandate that will guide the management team’s decision making and help other investors understand and relate to its mission. Investors in the Fund must understand that investment return is not the single determinative factor that will guide Adebayo’s decision. Any assurances or action by Adebayo to private co-investors in the Fund promising a set rate of return or promising to prioritize maximizing return would be contrary to the mission of the SDF.

This case is based on a February 2019 Enforcement Action by the Australia Securities and Investment Commission.

Let us know what you think of Ethics in Practice by taking this short survey.

Have an idea for a case for us to feature? Send it to us at

More About the Ethics in Practice Series

Just as you need to practice to become proficient at playing a musical instrument, public speaking, or playing a sport, practicing assessing and analyzing situations and making ethical decisions develops your ethical decision-making skills. The Ethics in Practice series gives you an opportunity to “exercise” your ethical decision-making skills. Each week, we post a short vignette, drawn from real-world circumstances, regulatory cases, and CFA Institute Professional Conduct investigations, along with possible responses/actions. We then encourage you to assess the case using the CFA Institute Ethical Decision-Making Framework and through the lens of the CFA Institute Code of Ethics and Standards of Professional Conduct. Then join the conversation and let us know which of the choices you believe is the right one and explain why. Later in the week, we will post an analysis of the case and you can see how your response compares.

Image Credit: ©CFA Institute

About the Author(s)
Jon Stokes

Jon Stokes is the Director of Ethics and Standards Education at CFA Institute. His responsibilities include design and creation of on-line ethics education, development and maintenance of the CFA Institute Code of Ethics and Standards of Professional Conduct, and the design and management of the CFA Institute Ethical Decision-Making and Giving Voice to Values education programs. Stokes holds a JD degree.

Leave a Reply

Your email address will not be published. Required fields are marked *

By continuing to use the site, you agree to the use of cookies. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.