Careers in Finance 23/03: Funds Management
What is funds management?
Funds management is the practice of increasing the total value of an investment portfolio over time by acquiring and trading investments that have the potential to grow in value. These investment portfolios are made up of investors’ money and controlled by fund managers. Who invest investors’ deposited amounts on their behalf in various types of financial assets such as equities, bonds, and real estate that they select.
How do mutual funds work?
Mutual funds are a particular type of investment fund managed by professional fund managers that pool investors’ money to purchase a broad array of stock, bonds, and other money market assets. These investment vehicles are each designed and maintained by their managers to match certain levels of risk and return. Alongside more particular objectives such as having a certain industry or asset allocation focus. Funds management firms thus typically offer several mutual fund options to investors, with each hopefully targeting specific investor preferences and risk aversion.
Another key characteristic of mutual funds is the distinction between passive of active funds, with passive index funds merely tracking the components of a financial market index (such as the S&P 500). While actively managed funds typically involve a fund manager who controls and invests the fund based on their expertise and investment theses, with the goal of outperforming the returns of such passive market indexes. This distinction of actively or passively managed investment options also extends to exchange-traded funds (ETFs). Which are similar to mutual funds in allowing investors to pool their money together into a portfolio. But different in that shares in ETFs are more liquid and can be traded on stock exchanges like regular equities. While shares in mutual funds can only be purchased or sold at the end of each trading day.
How is funds management different from stockbroking?
Both fund managers and stockbrokers strive to generate returns for their clients through buying and selling equities, with the main difference between the two being the level of investor participation in deciding which stocks are traded on their behalf. Funds management involves investors depositing money in a fund, with this than being invested by the fund manager who autonomously chooses the stocks that the fund buys. Stockbroking, however, has the investor take a significantly more active role in determining the particular equities they are invested in. Merely advising them on potential investment opportunities and leaving them with the ultimate decision of whether to purchase. Thus, while fund managers and stockbrokers undertake much of the same work in qualitatively and quantitatively researching equities, fund managers have control over which specific assets clients’ money is invested in while stockbrokers do not.
What does a role in funds management entail and what are recruiters looking for?
At the more junior analyst level of funds management, a key task is preparing qualitative research reports and presentations around particular industries and financial markets, alongside looking at individual equities and debt securities. This also involves conducting quantitative financial modelling, with these reports often being prepared to match risk and return requirements set by fund managers and provide investment opportunities for them that fit these. The senior firm leaders thereby focus more on making decisions about which particular trades the fund makes. By evaluating options analysts provide, alongside controlling the overall strategy of the fund through considerations like its risk profile and asset allocation.
Due to research being at the core of funds management, communication is a skill highly valued by recruiters in the industry. Analysts particularly often need to synthesise quite complex investment theses and quantitative analysis into digestible reports and presentations. Which makes the ability to successfully articulate oneself succinctly without losing meaning quite a valuable skill.
Further to communication, some other soft skills highly valued by funds management recruiters include:
· Interpersonal skills
What entry level opportunities are there in funds management?
Funds management Is a great career pathway for those interested in financial markets and valuations. While graduate roles in funds management are sparse and highly sought after, opportunities do exist at many of the bulge bracket investment banks such as J.P. Morgan and UBS.
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