Investment Management

Investment management is all about wealth creation—and wealth preservation. It is a dynamic and growing industry, if measured by employment trends and growth in the number of product offerings. The list of investment offerings continues to grow. The number of mutual funds available on the market today vastly exceeds the number of publicly traded U.S. companies. And that’s only mutual funds.

Investment management, simply defined, is the process of selecting securities (stocks, bonds, cash, or other marketable assets) best matching the investor’s objectives. Sounds simple, doesn’t it? In reality, the business of managing investments for others is anything but simple.

Mutual funds—investment pools of common stocks, bonds, cash, or a combination of all three—are thought of as traditional investments. Mutual fund managers buy securities and hold them, expecting they will rise in value. Fund managers who do this consistently are said to be “adding value” to client portfolios. As the maxim goes, “Buy low and sell high.”

Beyond mutual funds, there are many more opportunities to manage money for clients. Hedge funds, private equity funds, and venture capital funds manage money for wealthy investors, pension funds, and other institutional clients. Wall Street investment banks and bank trust departments offer money management services, called wealth management or private banking, for their private clients.

Hedge funds, private equity, and venture capital are typically viewed as alternative investments. In simplest terms, an alternative investment is anything outside the universe of publicly traded stocks or bonds.

Traditional investors, including mutual fund managers, try to “beat the market” every year by getting a return on investment better than the market itself. For equity investors, that means getting investment performance greater than the one produced by a recognized market benchmark. The most common benchmark for U.S. investors is the Standard & Poor’s 500, a composite of 500 large publicly traded U.S. companies. Beating the market is hard to do, year in and year out, because equity managers are betting against the consensus view of every other money manager. Hedge fund managers strive for the highest investment return possible, irrespective of an index—what is known in the industry as absolute return.

Investment professionals strive to buy assets they believe are under-valued (or currently out of favor, like technology stocks after the Internet dot-com bubble burst in 2000-2001). Managers use a variety of screening techniques to compare a company with others in its industry to identify companies with a real value (or “intrinsic” value) they think is greater than its current market value.

As with anything else, the beauty of a stock (or a bond, commodity, or for that matter any kind of marketable security) is really in the eyes of the beholder. In money management it all depends on the manager’s (or the investor’s) standard of value.

The world of investment management can be divided into two distinct groups: the companies that create investable products for sale to investors and the investment professionals who buy mutual funds and other investable products (exchange traded funds, hedge funds, private equity, etc.) acting as agents or fiduciaries for their clients. In the first group are big mutual fund complexes, such as Fidelity Investments, Capital Group, and T. Rowe Price; these are the investment arms of the big Wall Street banks, hedge funds, private equity firms, and venture capital funds. In the second group are financial advisors, commission-paid securities brokers, hedge fund of funds, financial planners, family officer managers (who provide advisory services for groups of wealthy families), and others who play a role in the sale and distribution of investment products.

Many of the big mutual fund complexes have telemarketing centers where employees answer telephone queries and help investors with investment decisions, such as deciding how much to contribute to an individual retirement account or Roth IRA or new funds opened to the public. The larger firms also have support staffs in areas like compliance, customer service and support, and trading.

Do you like working directly with individual investors, helping them decide how much to put into an IRA account or roll over their old 401(k) plan into an IRA account? Beyond the Wall Street banks and mutual fund complexes is another tier of money managers—the registered investment advisors, who create client portfolios, collecting a fee or commission for their efforts.

Some workers in investment services spend their days staying on top of government regulations, making sure their firm is following all the various state and local regulations investment firms have to deal with. Filing reports may not sound like a lot of fun, but this is a growth area. There are numerous positions in investment services for people who handle the required filings every quarter with banking agencies like the Federal Reserve Board, the Securities and Exchange Commission or the Financial Industry Regulatory Authority.

Recent college graduates typically enter the industry as research associates or portfolio manager associates. In some instances, undergrads with non-business educational backgrounds can start as research assistants and work their way up to associate. Both positions offer great opportunities to learn the nuances and fundamentals of the business by working directly with senior analysts and portfolio managers.

Research assistants perform administrative functions as well as those of a research associate. Tasks include answering the phone, scheduling meetings, listening to earnings conference calls if the associate or analyst is too busy, and data analysis. Over time, if the assistant shows the aptitude and ambition for research, more responsibility can be thrown his or her way. This can often lead to a promotion to research associate.

Most people spend two to three years in these positions before seeking an MBA and moving up. On occasion, associates are promoted directly to senior analysts without an MBA. However, this is rare and tends to occur only at the smaller investment management firms.

Another, less traveled, route for recent college graduates is to join a firm’s marketing and sales department as either an account management or product management associate. Recent MBA graduates or working professionals with considerable investment experience typically enter the industry as investment research analysts. They are usually assigned a small industry to cover so they can get their feet wet.