A fund manager is the key individual responsible for implementing an investing strategy and managing the fund’s portfolio. This role can be carried out by one person, two co-managers, or even a team of professionals.
Fund managers are typically compensated based on a percentage of the fund’s average assets under management (AUM). These professionals are present in various types of funds, including mutual funds, pension funds, trust funds, and hedge funds.
Investors should take the time to review a fund manager’s investment style before investing in any fund.
Understanding Fund Managers
The primary advantage of investing in a fund is entrusting your investment decisions to professionals. Fund managers provide peace of mind to investors, ensuring that their resources are handled expertly.
While market forces significantly impact fund performance, the manager’s expertise is also crucial. Skilled managers can often lead their funds to outperform competitors and benchmarks. Managers taking an active approach are known as active or alpha managers, whereas those applying a more hands-off strategy are passive fund managers.
Fund managers are generally responsible for the overall direction of mutual or pension funds, and they also manage teams of investment analysts. This necessitates excellent business, mathematical, and interpersonal skills.
Their primary duties include meeting with their team and both current and potential clients. Fund managers must also conduct in-depth research on companies, the financial industry, and economic trends to ensure their fund’s objectives are met.
The Path to Fund Management
To become a fund manager for mutual funds, pension funds, trust funds, or hedge funds, one typically needs a high level of education, professional licenses, credentials, and relevant investment management experience. Investors should seek fund managers with a track record of long-term, consistent performance.
Many aspiring fund managers earn a Chartered Financial Analyst (CFA) designation as a foundational step. The CFA program involves rigorous coursework in investment analysis and portfolio management. Analysts with CFA credentials often work closely with portfolio managers on research and recommendations before eventually moving up to managerial roles.
Responsibilities of Fund Managers
Fund managers primarily focus on selecting the best stocks, bonds, or other securities that align with their fund’s strategy. These activities may, at larger firms, involve a support team of analysts and traders. Often, decision-making is done in committees or different managers might handle parts of the portfolio.
Additional responsibilities include reporting fund performance, developing risk and objective reports for potential clients, and identifying suitable prospects for the fund.
Key Takeaways
- A fund manager is responsible for a fund’s investment strategy and trading activities.
- They oversee mutual funds or pensions, manage investment analysts, carry out research, and make important investment decisions.
- Most fund managers possess high levels of education, professional credentials, and relevant experience.
- Fund managers can be categorized into active and passive managers.
Active vs. Passive Managers
Active fund managers aim to outperform their peers and benchmark indexes. They meticulously study market trends, economic data, and company news to make strategic buy and sell decisions. This proactive approach often justifies higher fees for their services.
Conversely, passive fund managers track benchmark indexes, maintaining a portfolio that mirrors the index’s performance. This style usually involves lower fees due to the minimal need for ongoing expertise. Many exchange-traded funds (ETFs) and index mutual funds fall under this category.
Notable Mutual Fund Managers
Peter Lynch: An iconic figure in fund management, Peter Lynch managed Fidelity Investments’ Magellan Fund from 1977 to 1990. Lynch applied his unique investment philosophy to generate average returns of 29% per year during his tenure, growing the AUM from $20 million to $14 billion.
Albert “Ab” Nicholas: A legendary portfolio manager who founded the Nicholas Company and ran the Nicholas Fund starting in 1969. Nicholas consistently bested the S&P 500 Index from 2008 through 2014.
A Hedge Fund Icon
Hedge funds differ from mutual funds, often requiring large investment minimums from accredited investors. Ken Griffin’s Citadel Global Equities hedge fund is a premier example, delivering substantial after-fee returns. Griffin’s financial career started in a Harvard dorm room, and he launched Citadel with $4 million in 1990, accumulating a net worth of $37 billion by 2024.
Related Terms: Asset Management, Investment Analyst, Financial Planner, Investment Management.
References
- CNBC. “Investing Legend Peter Lynch on the Investments He Regrets Not Making in Recent Years”.
- Nicholas Funds. “Nicholas Fund, Inc”.
- Bloomberg. “Citadel Hedge Fund Gains 9% in Strong Multi-Strategy Year”.
- Forbes. “Ken Griffin”.
- Yahoo Finance. “Ken Griffin’s Wellington Fund Delivers Mind-Numbing Returns: Here are Its Top 15 Stocks”.
