[extract] The one area in which acceptance of portfolio theory has not been without difficulty is investment of trust funds. The fundamental legal norm governing trustee investment is the principle of prudence. A series of legal rules have been developed by the courts and legislatures over the centuries to give effect to this principle. These rules operate on assumptions which are incompatible with portfolio theory. In particular, the investment rule, the legal list rule, the anti-netting rule, the impartiality rule and the anti-delegation rule are perceived as significant obstacles to the lawful deployment of portfolio management techniques by trustees. Even in the United States, where portfolio management had its genesis, these legal rules have significantly hindered trustee reliance on portfolio management.
Butler, Andrew S.
"Modern Portfolio Theory and Investment Powers of Trustees: The New Zealand Experience,"
Bond Law Review:
1, Article 8.
Available at: http://epublications.bond.edu.au/blr/vol7/iss1/8