Fund Manager

Written by True Tamplin, BSc, CEPF®

Reviewed by Subject Matter Experts

Updated on September 07, 2023

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What Is a Fund Manager?

A fund manager is a professional who oversees and makes decisions about the investments in a portfolio or fund. This individual is responsible for implementing a fund's investment strategy and managing its trading activities.

Fund managers have a range of responsibilities, from researching investments and deciding which assets to buy and sell to monitoring the portfolio's performance and reporting to clients or stakeholders.

There are several types of fund managers, including mutual fund managers, hedge fund managers, and pension fund managers, each with their own unique responsibilities and areas of expertise.

Educational Background and Skills Required

Educational Qualifications

Most fund managers have a background in business, finance, economics, or a related field. They often hold advanced degrees such as a Master's in Business Administration (MBA) or are Chartered Financial Analyst (CFA) certified.

Essential Skills

Fund managers need to possess various skills, including analytical, decision-making, and interpersonal skills.

Professional Certifications

Professional certifications, such as the Chartered Financial Analyst (CFA) certification, are often required or preferred for fund management roles.

Types of Fund Managers

Mutual Fund Managers

Mutual fund managers oversee a fund that pools money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other assets.

Hedge Fund Managers

Hedge fund managers oversee funds that use a variety of investment strategies to generate high returns. These strategies can include leverage, short selling, and derivatives trading.

Pension Fund Managers

Pension fund managers oversee the investment portfolios of pension funds, with the goal of generating a reliable and steady income stream for pensioners.

Private Equity Fund Managers

Private equity fund managers oversee funds that invest directly in private companies or conduct buyouts of public companies, resulting in the delisting of public equity.

Types of Fund Managers

Role of a Fund Manager in Investment Strategies

Understanding the Fund's Objectives and Investor's Profile

The objectives may be focused on growth, income, preservation of capital, or a combination of these. The investor profile, on the other hand, includes aspects like risk tolerance, investment horizon, and financial goals.

A good understanding of these aspects helps the fund manager create an investment strategy that aligns with the investor's needs and expectations.

Asset Allocation

Asset allocation is the process of dividing a portfolio's investments among different asset categories, such as stocks, bonds, and cash or equivalents. It balances risk and reward based on an investor's goals, risk tolerance, and investment timeline.

Fund managers use their expertise and analytical tools to select the right mix of assets that has the potential to achieve the desired returns while minimizing risk.

Security Selection

This process involves analyzing financial statements, economic indicators, and market trends. The goal is to identify securities that are undervalued and have good prospects for returns, while aligning with the risk-return profile of the portfolio.

Risk Management

It involves identifying, assessing, and taking steps to mitigate or control the various types of risks that could affect the fund's performance. This includes market risk, credit risk, liquidity risk, and operational risk, among others.

Techniques used in risk management might include diversification, hedging, and using derivatives.

Performance Monitoring and Reporting

Fund managers continually monitor the performance of the portfolio against the fund's stated investment objectives and benchmark indices. If the portfolio is underperforming, the manager needs to identify the reasons and make necessary adjustments.

They also regularly report to the investors about the portfolio's performance, market trends, and any changes in strategy.

Regulatory Compliance

Fund managers must also ensure that all investment activities comply with relevant laws and regulations. This can involve keeping up-to-date with changes in financial regulations, maintaining accurate records, and making necessary disclosures.

Role of a Fund Manager in Investment Strategies

How to Evaluate a Fund Manager

Track Record of Performance

A fund manager's past performance, while not a guarantee of future results, provides valuable insights into their skills and competence. Look at the performance of the funds they have managed over different time frames and compare it to relevant benchmarks and peer funds.

This comparison will give you an idea of how the fund manager performs relative to the market and their competitors.

Investment Style

Some managers might follow a growth-oriented style, focusing on companies that are expected to grow faster than the market. Others might be value-oriented, looking for companies that are undervalued by the market.

Similarly, some managers prefer a passive investment strategy, aiming to replicate the performance of a specific index, while others follow an active strategy, seeking to outperform the market.

Make sure their style and strategy align with your investment objectives and risk tolerance.

Risk Management Strategy

A good fund manager should have a comprehensive approach to risk management, ensuring the fund's risk level aligns with its investment objectives.

Techniques used might include diversification across sectors and regions, using derivatives to hedge against certain risks, or keeping a portion of the portfolio in liquid assets to meet unexpected redemptions.

Tenure and Experience

A manager with long tenure at a fund provides continuity and stability, which can be beneficial for the fund's performance.

In addition, a manager with significant experience in different market conditions and economic cycles is likely to have a better understanding of how to navigate through varying market scenarios.

Costs and Fees

High costs can erode returns over time. Check the expense ratio of the funds managed by the fund manager, which includes management fees and other operational costs. A lower expense ratio is generally better, but it should also be weighed against the potential for higher returns.

Alignment With Investor Objectives

Check how well the fund manager's approach aligns with the investment objectives of the investors in the fund. The fund manager's investment strategy should match the risk tolerance, investment horizon, and financial goals of the investors.

How to Evaluate a Fund Manager

Conclusion

A fund manager plays a crucial role in overseeing and making investment decisions for portfolios or funds. Their responsibilities include researching investments, managing trading activities, and reporting to clients.

Fund managers require educational qualifications in finance or related fields, along with essential skills such as analysis and decision-making. They can specialize in different types of funds, including mutual funds, hedge funds, pension funds, and private equity funds.

Fund managers are responsible for various aspects of investment strategy, including understanding fund objectives and investor profiles, asset allocation, security selection, risk management, performance monitoring, and regulatory compliance.

Evaluating a fund manager involves considering their track record of performance, investment style and strategy, risk management approach, tenure and experience, costs and fees, and alignment with investor objectives.

Selecting a competent and compatible fund manager is crucial for achieving investment goals and maximizing returns while managing risks.

Investors should carefully evaluate these factors to make informed decisions about the fund manager that best suits their investment needs and preferences.

Fund Manager FAQs

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon, Nasdaq and Forbes.

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