2.1 Common Law Rule

“Maryland follows a ‘prudent person’ standard for investment by fiduciaries.” Attorney Grievance Comm’n v. Owrutsky, 322 Md. 334, 350 n. 7 (1991).   This means that “in all management of the trust a trustee is required to manifest ‘the care, skill, prudence, and diligence of an ordinarily prudent [person] engaged in similar business affairs and with objectives similar to those of the trust in question.’ This duty ‘is not necessarily to maximize the return on investments but rather to secure a “just” or “reasonable” return while avoiding undue risk.'” Maryland Nat’l Bank v. Cummins, 322 Md. 570, 580 (1991) (citations omitted).   In Board of Trustees v. City of Baltimore, 317 Md. 72 (1989), the Court clarified that the prudent investment rule looks to the whole portfolio, not on examination of each investment.   This was a challenge by the city pension trustees to ordinances requiring divestiture of its holdings in companies doing business in South Africa.   The pension trustees claimed that the ordinances conflicted with the trustees’ common law duties of investment prudence and loyalty.   The trustees’ claimed that prudence of investment was affected “by radically reducing the universe of eligible investments.” They claimed to be barred from almost 1/2 of the market capitalization of the S & P 500. (at 103).   The Court rejected this argument and held that the “prudent person” rule dictates a “whole portfolio” approach rather than an examination of each investment. (at 104). The “whole portfolio” approach to prudence is particularly useful in defending the performance of one holding by a showing of portfolio balance.   In addition to its contention that the ordinances violated rules of prudence, the trustees argued that the ordinances violated the duty of loyalty because they were forced to consider the interests of persons other than the pension beneficiaries. The Court rejected that argument, stating that the cost of considering the social aspects of investments are de minimis.