Fund Management

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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.

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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.

What is Fund Management?

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:

Mutual/investment funds
There are thousands of these funds available in different marketplaces. Some will invest in equities, some in bonds, and others in a mix of different assets.

Pension funds
These are longer-term investment funds that aim to build a pot of money that can be used when someone retires. They are usually invested in stocks, bonds, and other assets.

Hedge funds
This is a pooled amount of money that is invested – often quite aggressively – in order to generate a positive return. They often use complicated tools and investment strategies.

Fund Management Styles

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.

Active
Active management means having a manager at the helm who is free to make portfolio trading decisions in the hope of outperforming the stock market.

Passive
Passively managed funds usually seek to mirror the performance of a particular stock market index rather than beat it.

Growth
Fund managers with a growth focus will generally choose stocks with high future potential, as these are expected to grow faster than the market.
Income
If a fund manager has an income focus, it could mean the portfolio is populated with companies that have a track record of paying regular dividends to investors.
Bottom-up
This approach will base buying and selling decisions on an analysis of individual companies rather than broader economic and political factors.
Top-down
A fund manager with a top-down style will emphasize economic conditions more than a detailed analysis of individual companies.

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.

FAQs

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Rob Griffin
Financial Journalist
Rob Griffin
Financial Journalist

Rob is a seasoned journalist with over three decades of experience spanning across business and finance journalism. Before embarking on a freelance career in 2002, he contributed his expertise to the business desks of notable publications such as The Guardian, Yorkshire Post, Sunday Business (now Business Post), and Sunday Express. Throughout his freelance journey, Rob has been a regular contributor to a wide range of national newspapers, consumer magazines, trade publications, and websites. His work has appeared in titles such as The Independent, Citywire, Daily Express, FT Adviser, and Sunday Telegraph, covering an array of subjects from market trends to…