Money Management

Money Management: Overview

Do you like to look behind the numbers? Do you like to analyze market trends? Do you get an adrenaline rush when a stock takes off? If so, then money management may be the career for you. Money managers hold stocks and bonds for institutional clients and are on the buy side of Wall Street. Some money managers use the latest sophisticated quantitative techniques while others do very well using simple intuition.

Each money manager has their own unique style. The key to being successful is to have discipline, be broad-minded and be willing to admit defeat if an investment goes against you. Many money managers buy and hold fixed income securities including mortgaged-backs, corporate bonds, munis, agency securities and asset-backed securities. Others focus on equities, including small stocks, large caps and emerging market stocks.

Unfortunately, it is hard to get started in money management. It is particularly hard to start working for the best money managers or a top mutual fund. Good places to start are in bank trust departments, state and local pension funds and in insurance companies. Many people cross over into money management after getting years of experience on the sell side of the business in investment banks. Perhaps one of the best ways to break in is on the marketing side.

If you have the social skills and intelligence required to market money management services, there will be many companies interested in hiring you. To get started today, be sure to study portfolio theory, learn fixed income investments, take the CFA exam and, above all, learn the industry. And then, with a little luck, you will enjoy one of the most personally rewarding careers in the world of business: Money Management.
Money Management: Top Firms

Top Money Managers Globally
Name Assets in billions ($)
Citigroup / Travelers 1360
Merrill Lynch Asset Management 1352
UBS 1093
Fidelity 941
Barclays Global Investors 564
Vanguard Group 500
Mellon Bank / Dreyfus 460
State Street Global Advisors 459
Charles Schwab 400
Morgan Stanley Dean Witter 374

Note: Included in each firm's total are institutional assets, brokerage accounts, mutual funds, variable annuities, and private banking accounts (no retail banking deposits). Only includes U.S. companies (UBS because UBS Brinson is in Chicago).

Source:CareerSelector Research, August 1999.

Money Management: Facts & Trends

Educate Yourself If you are thinking of going into money management be sure to train yourself well in fixed-income analysis and strategies. You are most likely to be employed in a job analyzing bonds so be sure that you are familiar with measures of bond price volat lity, factors which affect bond prices, valuation of bonds (especially with embedded options), yield curve strategies and institutional details of the Treasury, agency, corporate, municipal, euro, mortgage-backed and asset-backed markets.

Succeeding as a Money Manager is Challenging The job requires a combination of intelligence, effort, intuition and discipline to succeed in the long run. Most people lack the proper combination of these traits.

Breaking in Tough It is hard to break into the business of money management. A good place to start is at a commercial bank in its trust department or at a state-run pension fund. Insurance companies can also be a good starting point if you are a strong student.

Indexing is Gaining Momentum Faced with poor results from active management, it is becoming more common for large pension funds to index their investments. Indexing is the practice of passively mimicking an equity index such as the S&P 500. Some of the largest fund groups including Barclays Global Investors, Vanguard and TIAA-CREF are promoting indexing. The result has been explosive growth, albeit with much lower fees than is being charged by active managers.

Hedge Funds are a Growth Area Despite some well-publicized problems, the area has tremendous potential. Hedge funds are opportunistic, private funds which invest in stocks, bonds, currencies and derivatives often using significant amounts of leverage. Hedge funds management approximately $50 billion in assets according to MAR Hedge. But because they use extensive leverage, they manage positions in excess of $250 billion.

Mutual Funds are Enormous Mutual funds are pools of financial resources managed by a professional money manager. The Investment Company Institute reports over 20 types of funds ranging from growth funds to precious metals funds. Key mutual funds activities fall into trading and order execution, investment analysis, marketing, record keeping and customer services.

Professional Managers are Big Sanford Bernstein and Co. estimates that over $9 trillion is entrusted to professional money managers. The business of money management is enormous.

Pay for Performance Expanding A new trend in money management is towards pay for performance. This means your pay will be high when times are good, but barebones in bad years.

Money Management is Going Global Another growth area in money management is global investing. According to Pensions and Investments [1/24/94], the fraction of international investments by the Top 200 US pension funds increased by over 25 percent.

The Mutual Fund Business is Facing Ferocious Competition. There are now over 6,000 mutual funds in business. However, no-load funds (which do not charge customers an up-front fee) are growing very rapidly.

On the Whole, Money Managers Don't Beat the Market In the last ten years, 74% of equity managers did not beat the S&P 500 index after fees. The old efficient market theory seems to work just like the textbooks say. If you go into this business, then, it is essential to be aware of the difficulties of building a good record and beating the market.
Money Management: Job Options

Portfolio Manager Portfolio managers will usually work for a money management firm or pension fund to select and manage investments which meet the goals of a group of investors. Many managers now work in specialized commodity funds or hedge funds. Portfolio managers have different styles ranging from a bargain-hunting approach (value investing) to a growth stock selection approach. This work requires patience, discipline and a strong understanding of financial markets and companies.

Portfolio Management Marketing If you are outgoing and knowledgeable, then you might consider a sales position in portfolio management. This means that you will spend a lot of time putting together presentations for clients (working with the portfolio manager). Each presentation needs to be put together very well and calls for hours of work and strong knowledge of the firm. Firms often are looking for seasoned professionals in this position. People who command respect and trust when making recommendations about ways to invest large sums of money. Expect heavy travel and good pay.

Investment Advisory There is a large industry of firms which provide investment advice, performance evaluation and quantitative analysis to the money management sector. This business consists of firms such as Wilshire Associates in Los Angeles, CA which provide customized reports to pension funds and the like. This work requires strong quantitative skills and deep appreciation of finance.

Mutual Fund Analyst Many mutual funds and large pension funds require analysts to do the analytical work required before an investment is made. Is a particular municipal bond safe? What is its interest rate risk as measured by duration and convexity? What other features of the security are important to understand before purchase? This work is analytical and requires a working knowledge of computers, perhaps in the programming dimension. Most mutual fund analysts truly enjoy their jobs because of the sleuthing involved and the fact that the work is different every day.

Hedge Fund Principal/Trader Hedge funds are opportunistic, private funds which invest in stocks, bonds, currencies and derivatives often using significant amounts of leverage. These funds hire analysts and traders and have exhibited rapid growth in recent years.

Money Management: Skills & Talents

The money management industry is booming and offers a variety of career options. This field deals with the largest markets of any kind in the world and call on the following skills:

Key Skill Area Requirement
People skills: Medium
Sales skills: Medium
Communication skills: Medium
Analytical skills: High
Ability to synthesize: High
Creative ability: Medium
Initiative: Medium
Work hours: 55-75/week

On the Buy Side The field of money management involves working on the other side of the fence from the investment banks. That is why this field is known as the "buy side."

More Humane than Investment Banking Many investment bankers are "Type A personalities whereas money managers aren't as hard-charging. The job calls for a mix of Type A and Type B.

Must be Able to Take Risk Money managers get to face the challenges of investing. If you like the excitement of selecting investments and can deal with the uncertainty of waiting for the payoff this field is for you.

It's Important to Have a Broad Understanding of Business One of the exciting things about investing is that you get rewarded for knowing how business works. People who understand and enjoy business are among the most likely to succeed in this arena.

You Gotta Hang In There You need to be a tenacious person to succeed in money management. It's tough to break into the business but once you have experience, the rewards can be high. Be prepared to hang in there through some tough times.

Approaches are Diverse There are many styles and approaches to investing. You can approach the field in a very technical way with heavy reliance on computers or, instead, resort to a common sense, low-tech approach. One of the leading investors of our time, Warren Buffett, employs a small staff and spends little time with quantitative models when making investment decisions.

Think About How You Are Going to Get Started Because it is so hard to break into money management it is advisable to think carefully about your entry strategy. You have to bring something to the table in an interview that others can't. This will either be superior knowledge and understanding or experience. A good place to start is to get experience in investing by working for a public pension fund, a bank trust department or for a mutual fund.