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QPAM Primer

QPAM Qualifications

The qualifications for a Qualified Professional Asset Manager (a "QPAM") are set forth in Prohibited Transaction Class Exemption 84-14 issued by the Department of Labor. Certain regulated institutions, such as certain banks and insurance companies, may qualify as a QPAM.

Trustees of ERISA pension plans who are seeking to hire a QPAM in order to deal with transactions where there are party in interest dealings with fund assets, which include the leasing of an asset to or from a party in interest or selling or buying an asset from or to a party in interest, need to understand that while they may have hired an investment manager to handle their affairs, not all real estate investment managers necessarily qualify as a QPAM. A party in interest is a trustee of the pension fund, any service provider who is working for the pension fund, any beneficiary of the pension fund, any contributing employers or employees to the pension fund and any family member of any of the above. The list of parties in interest is expansive and needs to be reviewed carefully.

In order for a real estate investment manager that does not fall within the part of the definition of a QPAM that is applicable to banks, savings and loan associations and insurance companies to qualify as a QPAM, the investment manager must:

  • Be registered as an investment adviser under the Investment Advisers Act of 1940 as amended; and
  • Have total client assets under its management and control in excess of $85 million as of the last day of the QPAM's most recent fiscal year; and
  • Have shareholders' or partners' equity in excess of $1,000,000 (or have an affiliate that satisfies this net worth requirement and unconditionally guarantees payment of all of the adviser's liabilities) as determined by the QPAM's most recent balance sheet provided it is no more than two years old and was prepared in accordance with GAAP.

Under the terms of the QPAM exemption, if the plan's investment manager qualifies as a QPAM, and has been delegated the authority to make all investment decisions with regard to the transaction by the trustees of the pension fund, and has assumed full fiduciary liability for the transaction, then certain real estate transactions that would otherwise be prohibited transactions can qualify for the exemption.

It is important to note that the conditions for relief under the QPAM exemption are stringent. In addition to engaging a qualified QPAM, the following rules must be followed carefully in order for a transaction to qualify for the QPAM exemption:

  • The transaction must be negotiated by the investment manager/QPAM or under its general direction and the investment manager/QPAM must be responsible for the decision to enter into the transaction;
  • The party in interest involved in the transaction cannot be the investment manager/QPAM or any of its affiliates (meaning that the investment manager is not buying or leasing the investment, which would be a conflict of interest that cannot be waived);
  • The terms of the transaction must be at least as favorable as the terms of an arm's-length transaction between unrelated persons;

  • Neither the investment manager/QPAM, nor its affiliates or owners of more than 5% of the outstanding ownership interests in the investment manager/QPAM can have been convicted of specific types of felonies involving fraud or deception during the ten years preceding the transaction;

  • The assets of pension fund managed by the investment manager/QPAM cannot represent more than 20% of the total assets managed by the investment manager/QPAM. Thus, where the proposed investment manager/QPAM only has, for example, $100 million of assets under management, and the assets of the pension fund managed by the QPAM have a value in excess of $20 million, a transaction between the pension fund and a party in interest would not meet the requirements for the QPAM exemption and the transaction would therefore be a prohibited transaction for which the trustees would have personal liability as fiduciaries. In other words, the provision is not satisfied if an ERISA governed pension plan uses a QPAM who does not manage enough assets so that 80% of the total client assets managed by the QPAM are managed for plans other than the pension plan creating the party in interest relationship with respect to the transaction in question; and

  • Neither the pension plan trustee involved in the transaction nor his or her affiliates can hold the power to appoint or terminate the investment manager/QPAM or to negotiate, renew or modify the terms of the investment manager/QPAM's investment management contract with the pension plan at the time of the transaction.

The requirement that neither the pension fund nor its affiliates hold the power to appoint or terminate the investment manager/QPAM is deemed to be satisifed when applying the QPAM exemption to a transaction between (i) an investment fund in which two or more unrelated pension plans have an interest, and (ii) a party-in-interest to one of the pension plans invested in the investment fund, if the investment fund is managed by a QPAM and the assets of the pension plan invested in the investment fund, when combined with the assets of other plans established or maintained by the same employer, represent less than 10% of the total assets of the investment fund.

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