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What is Fund Management?
Fund management is the job of managing money for other people. It refers to running portfolios on behalf of investors with the aim of achieving stated aims.
Funds can be managed by one individual, two, or even a whole team. It all depends on the investment house and the portfolio’s overall objective.
Key Takeaways
- Fund management is the job of looking after other people’s money.
- A fund manager is responsible for implementing a portfolio’s investment strategy.
- Active, passive, growth, and income are different fund management styles.
- Pension funds, hedge funds, and mutual funds will all have managers.
- You can make – and lose – money through fund management.
Who is a Fund Manager?
A fund manager is in charge of running a portfolio in accordance with the mandate laid down by the investment house. Their duties will include implementing the fund’s investment strategy, meeting company managers, and making necessary trading decisions.
Fund managers can be responsible for managing millions of dollars and the most successful will be handsomely rewarded for their work.
Types of Fund Management
A key part of the fund management definition is understanding the different types of portfolios that can be run:
Fund Management Styles
There are many different ways to run an investment fund, known as fund management styles. Here, we look at some of the most common.
Fund Management vs. Asset Management and Portfolio Management
The financial services industry loves jargon, and if it can find different ways to say the same thing, it will do so, according to Jason Hollands, managing director of Bestinvest.
He told Techopedia:
“All three terms, along with investment management, can be used interchangeably to describe the business of managing people’s investments, whether they are private individuals or large institutional investors such as pension schemes and insurance funds.”
However, it is possible to break these three terms down a bit further.
“Strictly speaking, fund management refers to businesses that manage investment portfolios within fund structures,” said Hollands. “This is where an investor’s money will be pooled together with that of others and invested together in a common portfolio”
Therefore, he pointed out that fund management is technically a subset of asset management or portfolio management.
“Those are all-encompassing terms for businesses that invest and manage money in financial markets and really have no difference in meaning,” he added.
Fund Management Uses
The main use of fund management is to make money for clients. For individual investors, the alternative to a fund is buying the shares of individual companies.
While they will benefit if the company’s share price rises, the value of their investment will be adversely affected if it goes down.
Another upside of fund management for individual investors is having a professional deciding which assets to buy and sell.
Fund Management Risks
There are plenty of risks associated with fund management. Top of the list is the fear that the fund manager will underperform the stock market.
Previous studies claimed that almost 80% of active fund managers were falling behind the major indexes when it came to returns generated.
A fund manager will also have control over what assets are bought and sold. This means they can buy positions that you might not want to see in the portfolio.
Fund Management Pros and Cons
Pros
- Making returns on money invested
- A professional manager makes the investment decisions
- Benefit of diversification
- Plenty of choice, with thousands of funds available
Cons
- Performances will vary between fund managers
- No control over what assets are bought and sold
- Can have to pay high fees
- You can still lose money
The Bottom Line
Fund management meaning is the act of running a portfolio in order to make money for an investment house and its clients. The fund manager at the helm will be ultimately responsible for making the trading decisions required to achieve the portfolio’s objectives.
The benefits of fund management include having a professional looking after your money and exposure to a diversified portfolio of assets.
However, it’s not a guaranteed route to riches. Not all fund managers will make money so individual investors still risk making substantial losses.
It’s important to consider how individual fund managers have performed over various time periods to see if they have a track record that stands up to scrutiny.
