Investment Manager: Definition, Types and Roles
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Key Takeaways: Investment managers are individuals or organisations that invest in security portfolios on behalf of their clients. There are three types of investment managers - Personal Fund Managers, Business Fund Managers, and Corporate Fund Managers. Online investment managers, known as Robo-advisors, are automated investment platforms that make investment decisions based on algorithms.
An investment manager is an individual or organisation who invests in security portfolios on behalf of their clients. Also known as fund or asset managers, investment managers handle all activities related to managing client portfolios. They do so, keeping in mind the investment objectives, horizons, and risk profile of their clients.
Types of Investment Managers
Investment managers for funds are broadly classified into three types:
- Personal Fund Managers
- Business Fund Managers
- Corporate Fund Managers
Each of these fund managers deals with a specific fund type as experts in their fields. Generally, personal fund managers deal with a smaller quantity of funds and work with multiple clients. As a client hiring an investment manager, you must consider factors such as the reputation of the manager, the fees they charge, their clientele, and so on.
Performance and Fees of an Investment Manager
The compensation or fees payable to an investment manager can be either management fees or performance fees, or a mix of both.
The fees that investment managers charge clients for managing specific investment funds are known as management fees. These fees typically compensate the managers for their time and expertise in managing a portfolio. However, they also include other expenses such as investor relations expenses and any administrative costs.
Investment managers also charge performance fees for generating good returns. Thus, it is unlike management fees which are paid to the managers irrespective of returns. Generally, performance fees are a certain percentage of the investor profits (realised and unrealised) or a percentage of the amount invested. Profit percentages are especially common among hedge fund investments.
What Does an Investment Manager Do?
The role of an investment manager involves financial planning, undertaking research, investing, day-to-day buying and selling of securities, portfolio monitoring and more. They, first, analyse your current financial status and accordingly set reasonable financial goals. Then, based on these goals, they devise strategies and conduct trades within portfolios to bring the best returns for you.
Moreover, they help answer any questions and concerns, offer valuable investment advice and help you make tough financial decisions. In simple words, investment managers assist with wealth augmentation through strategic investments.
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Key Responsibilities of an Investment Manager
Investment managers are at the heart of the investment industry and are responsible for investing and bringing good returns for their clients. Their key responsibilities include:
A significant feature of investment, portfolio diversification is a crucial responsibility of the investment manager. Diversifying ensures adequate risk distribution, a good balance between assets and liabilities and influences investing decisions in stocks and bonds.
Asset allocation involves investing funds in bonds, stocks, real estate and commodities. The amount of money you invest and the securities in which you invest, also known as asset classes, significantly impact the performance of the funds. Through asset allocation, you can determine the efficiency and success of a fund and the possible returns it can generate.
Research & Review
A crucial responsibility of an investment manager is to keep researching and staying up to date with the changing trends in the investment market. The manager must stay apprised about the state of the economy, study and be aware of the various financial products available, and present relevant investment opportunities.
Skills Needed in an Investment Manager
To become an investment manager for funds, one requires an undergraduate and a master’s degree in business, economics, or finance. However, a degree can only help so much. The investment manager must also possess special innate skills to succeed in their role. These include:
Investment management involves numbers and complex data. Thus, all managers should possess the skills to communicate their analysis and data to clients in a simplistic, sensible way.
In the course of a business relationship, the investment manager will usually have the final say in several decisions. Therefore, managers need to be confident and make effective decisions on behalf of their clients whenever the need arises.
Investment managers work through tons of research every day. So naturally, they should be comfortable with numbers and good at math to identify trends and patterns quickly.
Good investment managers must be aware of the intricacies of investments. They should know how to take calculated risks and explore new investment opportunities. They must base their investment decisions only after analysing and predicting data.
Online Investment Managers
With the advancement in technology, it is no surprise that financial services have also gone digital. Today many investment management firms offer Robo-advisory services, also known as online investment managers. These are automated investment platforms that make investment decisions based on algorithms. They help do all the legwork and are highly convenient, accessible, and affordable too. If you are a novice investor looking for a reasonably priced investment manager, then an online manager may just be the right fit for you! That said, you must do your due diligence and research before hiring a human or robotic investment advisor.
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*Disclaimer: This article is published purely from an information perspective and it should not be deduced that the offering is available from DBS Bank India Limited or in partnership with any of its channel partners.
The purpose of this blog is not to provide advice but to provide information. Sound professional advice should be taken before making any investment decisions. The bank will not be responsible for any tax loss/other loss suffered by a person acting on the above.