Must a government use an investment adviser as part of its portfolio management team?

Using an investment adviser as part of a government’s portfolio management team is not strictly required, but it is a recommended practice under certain circumstances. When a government does not have adequate staffing levels to actively monitor and engage in investing, utilizing an investment adviser can provide valuable expertise and resources. This approach helps ensure that investment decisions are made with proper analysis and strategy, aligning with best practices in finance and investment management.

Governments may face challenges with limited resources or expertise in managing investments directly; therefore, relying on an adviser can enhance the effectiveness of their investment activities. The recommendation aligns with guidelines from organizations like the Government Finance Officers Association (GFOA), which aims to promote effective and efficient financial management within public sector organizations.

While some might argue that state laws or the autonomy of the government agency may influence this decision, it does not negate the benefits that hiring an adviser can bring, especially when in-house capacity is limited.