Career in Asset Management (Mutual Funds)

What is Asset Management?

Asset management is investing a pool of  investments into different assets like securities, stocks, bonds, real estate managed by a manager who is compensated by fees or certain percentage of assets of investors or commissions as they do market analysis and create a portfolio of investment for their clients.

Link to course and articles on types of firms within asset management – mutual funds, managed accounts (portfolio management services), alternatives etc….

Roles within Asset Management 

Like most financial services firms, asset management firms have front, middle and back office functions. Here we focus on the main roles within the investment team only.

Economists ascertains future macro trends and their impact on domestic and international markets. This includes predicting outcomes in developed and emerging market currencies and fund flows. Prepare reports on various macroeconomic developments and likely sectoral shifts. Identifying global macro developments and keeping the fund management team abreast of changing macro dynamics, both domestic and global. Using global macro variables, clubbed with anecdotal evidence, to give the fund management team a heads-up before the occurrences of risk-offs in the markets. Preparing market presentations for fund managers.Doing macro and policy analysis, forecasting and modelling macro variables, providing investment insights to the fund management team

Analysts turn their intangible skills into tangible by creating his own research reports then tracking how your investment recommendations do by noting the prices of assets on the day that he recommended them for purchase and then tracking how they perform over time. Among various other analysts,Equity Research analysts begin their day by going to different telephone calls with company’s dealers and intermediaries before the business sectors open. In these calls, they examine and share the venture suggestions for customers. They plan itemized inquiries about reports and valuable suggestions. Equity Research Analysts spend a decent piece of the day doing research on the part or industry or organizations they cover. An expert needs to invest a lot of energy speaking with the organization’s administration, retail deals, constraints and so on. To gather the data, they regularly visit organizations and go to different industry meetings. They investigate the data gathered, to survey monetary explanations, evaluate income and benefits of the organization. Utilizing this learning they get ready a detailed report with proposals and complex money related models. Research investigators need to keep themselves educated on the most recent updates.

source-https://www.cfainstitute.org/-/media/documents/survey/investment-professional-of-the-future-v2.ashx

Fund manager’s job involves selecting the best stocks, bonds, and other financial market instruments which will deliver results to the investors given the fund’s objective. They then trade in such securities that make sense for the portfolio and sell those which don’t. In order to do this, they need to delve deep into the financials of a large section of publicly and privately traded companies. They make use of several tools and software platforms to conduct this research.

The manager collects information, reads financial briefings, and strives to remain updated about global economic events. Based on the results of their research, they create a shortlist of companies, which fall in line with the investment objective of the fund that they are managing. Apart from portfolio management, fund managers and their team are also responsible for preparing periodic reports for investors detailing the portfolio composition of the fund, explaining some of the major portfolio decisions that were taken, and performance. A fund manager may also accompany sales and marketing professionals from the company to various events in order to promote their funds and represent their company in investment-related panel discussions to deepen the brand appeal of the fund house in general and their managed fund(s) in particular. Managing costs associated with administering and operating a fund is also a key role played by a fund manager. All portfolio composition-related decisions are taken with efficient cost management in mind. 

Dealers/Traders finally places the orders as per the instructions

Sales and client relations teams market the company and its products to potential and current investors

Infrastructure teams keep the company running – everything from IT to HR. These aren’t financial roles so we won’t discuss them here but they’re vitally important to the running of the company

Skills needed to be a fund manager

There are certain arsenals of soft skills required along with technical skills to become a fund manager like Self-Knowledge/Introspection, Creativity, Intuition ,Decisiveness, Absolute vs. Relative Decision Making, Forthrightness, Discernment, Scaling, Context Creation, Curiosity Strong communication skills since an asset manager’s profile needs a lot of interaction with the client at all times.

Technical skills like financial modelling skills, reporting skills, mathematical proficiency is, of course, important for this career, but you’ll also need to have strong analytical skills and be detail-oriented in order to process large amounts of financial data and find the best investment opportunities. Technical aptitude is essential for using financial and portfolio development software. You’ll also need to be a good communicator, since you’ll have to present your findings and investment options to clients.Being an expert at number crunching and good quantitative and analytical skills help you in the job.

Portfolio managers and other financial analysts may also need to hold one or more licenses from the Financial Industry Regulatory Authority, but you’ll generally obtain such licensure after you’ve gotten a job.

Asset management firms hire the best talent from the top universities of the world, there are certain prerequisites that are needed for hiring, which would be a degree in Finance primarily a CFA Chartered Financial Analyst or an MBA Masters of Business Administration in Finance. Though these degrees are not required for entry-level jobs as you work up the corporate ladder in an asset management firm these degrees are very beneficial.

source-https://www.cfainstitute.org/-/media/documents/survey/investment-professional-of-the-future-v2.ashx

source-https://www.cfainstitute.org/-/media/documents/survey/organizational-game-changers.ashx

A day in the life of a fund manager

Generally, a fund manager starts his day by prioritising tasks in hand, spending a few minutes responding to the urgent emails which need a timely response followed by catch up on market activity and the day’s news by reading various business newspapers before grabbing breakfast. Then tackling the highest priority objective for the day before the phone starts ringing and meetings begin.

Contacts the trader to send orders that he wants to work today in case they reach the prices he is looking for. 

The morning meetings start when the team gets together by looking at what has happened in the investment world and how it might affect the client portfolios.The team meetings start with portfolio analysts to gain further understanding behind their investment theses and for preliminary research on the company followed by going through  several sell-side reports and a financial model.He takes the update on companies asking the analyst if it will generate increasing returns on invested capital and meets the portfolio’s initial screening process ,if yes ,then asking portfolio analyst to continue researching and build out a detailed financial model. 

For the client meetings, he updates his knowledge of their financial circumstances, in case anything has changed.Since, it is impossible to advise someone unless one has a very clear understanding of their financial position.He then reports back to them on how their portfolio is doing and what we expect for the year ahead.

Meeting with the company management team and leaders includes discussing  new deals and opportunities, deals that closed last week, successes from the week prior, updates on important issues regarding the portfolio.

Meetings with CEOs and CFOs of companies that he tracks, where discussion regarding outlook for their business happens. Fund Managers have to be a big sponge in this business, constantly absorbing information that may become useful in the future. 

Career progression for fund manager

As a general rule of thumb, a career track for an analyst usually consists of: 2-3 years as analyst, 1-3 years as senior analyst, and then a portfolio manager (if at a single P&L fund you might have to leave to accomplish a PM role).

Year 1

  • Work with the Sector Head and conduct fundamental research.
    • Attend industry conferences.
    • Attend management meetings.
    • Conduct field level research.
  • Learn a Sector.
    • Build financial models within a sector.
    • Start creating surveys and proprietary research tools.
    • Listen to company and industry conference calls.
    • Read sell-side equity and macro-economic research.

Year 2

  • Engagement:
    • Analyze investments on your own and work more independently.
    • Engage in senior level investment idea conversations.
    • Have a positive impact on choice and size of sector positions.
    • Develop a network of other buy-side analysts and management teams.

Year 3

  • Becoming a Senior Analyst:
    • Lead the analysis on several investment ideas.
    • Generate own investment ideas.
    • Enhance sector performance.

Year 3+

  • Recommend investment ideas that get implemented.
    • Generate positive P&L.
    • Demonstrate ability to add value to other sectors.
    • Understand the consensus view on stocks and have the ability to quickly find differentiating views.
    • Participate in investment team meetings.

Source – http://www.streetofwalls.com/finance-training-courses/hedge-fund-training/hedge-fund-analyst/

Pay scales

The following charts show some figures for the US market –

Source-payscale

The overall income of asset managers is ranging from $41,000 to $121,000 per annum.

Payscale of a financial analyst in india

Source: LinkedIn https://www.linkedin.com/salary/financial-analyst-salaries-in-india

Payscale of fund manager in india

Source: LinkedIn – https://www.linkedin.com/salary/search?countryCode=xx&geoId=102713980&keywords=fund%20manager

The BLS (Bureau of Labour Statistics) projected that jobs in this field would increase by 16% from 2012-2022, which is faster than average when compared to all occupations. This increase will be driven in part by the growing complexity of investment portfolios and the widening range of assets available for investment. Despite job growth, you may still experience keen competition for employment, because there are more people attracted to this high-paying job than there are jobs available.

Future of Asset Management

Big Data

Nowadays, algorithms are much faster at analyzing earnings and economic news than humans. This opens the door to short-term trading. In fact, many asset managers are now using machine-learning techniques to help process data.

In order to generate alpha, asset managers are trying to discover data with predictive potential faster than fellow market participants.

Robo-Advisors

In 2017, robo-advisers managed an estimated US 180 billion in assets. The main advantage of robo-advisors are that:

  • They seem to attract a younger crowd of investors;
  • They charge lower fees because of the scalability of the technology;
  • They provide low-barrier entry to other firms, such as tech firms, to enter the lucrative asset-management industry.

 “As technology becomes the lingua franca, investment professionals must become literate in a language that is not their own and be able to ask the right questions. Asking the right questions is and remains a key competency for our profession.” As the industry moves to an AI+HI model, investment teams of the future will fulfill three main functions (investment, technology, and innovation) in eight types of roles, as shown in Exhibit below.

source-https://www.cfainstitute.org/-/media/documents/survey/investment-professional-of-the-future-v2.ashx

Tang Xiaodong, CFA, CEO of China Asset Management, gave the audience an example of such insight. Investors have used image recognition programs to find oil tankers on satellite imagery. “Some have been able to get a better gauge on oil supply by analyzing the tankers’ tonnage, routing, and port arrival times,” he said.

Many analysts listen to quarterly conference calls from corporate management to detect clues that they can use to estimate corporate earnings and build valuation models. “With the help of voice recognition programs,” Tang said, “they can zoom in on a small number of companies where AI raises a red flag based on changes in management’s speech patterns.”

AI’s freedom from emotions and behavioral biases should also lead to better investment decisions. Although neural networks operate in different ways than a typical quant model, they share that same lack of emotions. (More on the difference in the next post.) And as the saying goes, “The market does not beat them. They beat themselves . . . ”

Behavioral biases will continue to influence our investment decisions, often to our detriment. For example, investment managers are often prone to herding, or following the crowd. At the height of the tech bubble, for example, too many investors chased a stock simply because management added a .com to the company name.

But machines won’t follow the next machine. Unless we program them to do so.

Bibliography

  • Introduction and job areas

https://corporatefinanceinstitute.com/resources/knowledge/finance/asset-management/

Toy factory example to understand asset management job areas

https://www.youtube.com/watch?v=87F6VEodq84

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