Fund Management is the stewardship of pools of money on behalf of third parties. There are many different forms of Fund Management from higher risk geared Hedge Funds using a range of financial instruments to plain vanilla equity or debt portfolios. In each case the manager will be aiming to beat a pre-agreed benchmark and/or performance yard stick (eg FTSE All Share index).
In the case of an equity portfolio the role of the manager will be to select individual equities in the proportions which the Manager believes will optimise the performance, taking account of the client’s risk profile. For example if the manager is bearish on the oil price he/she may decide to reduce holdings in BP or Shell below a normal benchmark proportion. However if these companies are a large part of the benchmark it may not be advisable to sell entirely in case his/her view is wrong. In this way the manager will continually adjust the portfolio to reflect changing views to try and gain a performance edge.
To inform these decisions the Fund Manager will use a range of sources from the news media, and Bloomberg or Reuters screens, to talking directly to corporate management or analysts and sales people at investment banks. In this way the Manager is trying to build a better picture of the outlook and prospects for the company that he/she is invested in. Some Managers will rely on these conversations and third party analysts for the information on which to base their decisions but many fund management firms have now built their own analytical teams to be able to better judge the outlook and to build their own proprietary information. This may involve detailed modelling of the companies and in depth research of their own. Other fund managers may rely more heavily on quantitative techniques and use very little fundamental research.
Whichever method is followed the objective is likely to be the same, to out-perform the benchmark. This remains a very tough goal to achieve consistently and few people do. That said the role is intellectually challenging and there is good scope for making decisions.