What is Investment Management?
The field of investment management includes asset management, hedge funds, pension funds, sovereign wealth funds, and wealth managers. Insurance companies often have an investment management division, and charitable organizations and foundations need to manage investment capital. Although different in structure, private equity might also be considered part of the investment management industry. All these businesses serve different types of clients. For example, asset managers invest on behalf of both retail clients and institutions, while wealth management firms focus on high-net-worth individuals and families. Hedge fund clients include institutions and qualified investors who seek exposure to non-traditional asset classes. The investment management process takes place in stages – from research and idea generation, through portfolio construction, security selection, and ongoing monitoring and management. Returns are typically measured against a pre-determined benchmark or risk-adjusted returns compared to those produced by a market index or peer group. The overall responsibility for performance sits with the investment manager.
Key Learning Points
- Working in investment management is prestigious, highly compensated, and intellectually challenging.
- Investment managers invest on behalf of clients and make decisions intended to achieve the best outcomes for these clients.
- Managing investments requires strong knowledge of the financial markets. Most professionals tend to specialize in a particular asset class, for example, equities or bonds.
- Success usually requires an advanced degree in a financial discipline and professional certifications.
Why Work in Investment Management?
An investment manager is one of the most desirable job titles in the financial sector. While compensation is generous, the job is interesting and intellectually demanding. Managing investments is a dynamic process that incorporates both quantitative and qualitative aspects. Managers screen potential opportunities, build financial models and monitor existing holdings as well as draft research and present ideas to an investment committee. However, investment managers need exceptional communication and people skills as well since they spend a significant amount of time speaking with company managers and managing client relationships. Many investment bankers see Investment management as the next step after a few years in banking as it offers a better work-life balance with excellent career prospects.
Although most professionals working in investment management have a bachelor’s degree in a financial discipline, that is not always a requirement. For more junior roles, demonstrable knowledge of different asset classes, investment strategies, and industries can be more important than a formal degree. Nevertheless, when it comes to mid-level and more senior roles, a master’s degree in finance or an MBA is considered an advantage. Some firms, private equity, for example, require advanced degrees.
Professional qualifications can be even more important than formal degrees in investment management, depending on the type of firm and the clients it serves. The most popular qualification is the Chartered Financial Analyst (CFA) designation, which emphasizes portfolio management and investment analysis. It is especially applicable to those working in asset management or discretionary portfolio management. The Chartered Alternative Investment Analyst (CAIA) designation is more relevant for hedge funds and private equity. Certifications are more budget-friendly than university degrees and they are an excellent way to demonstrate competence and commitment. However, both designations require the holder to pass multiple stringent exams and the entire process can require just as much time as an MBA program.
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The following structure is typical in asset and wealth management but may apply to hedge funds and pension funds as well. The figures are representative for large firms.
Junior Investment Analyst
- Salary: $60K-$80K
- Bonus: up to 30% of base salary
- Promotions: within 2-3 years
- Exit Opportunities: Sell-side research, retail investment advisory, financial planning
- Bonus: up to 50% of base salary
- Promotions: within 2-3 years
- Exit Opportunities: Sell or buy-side research, investment consulting
Senior Investment Analyst / Junior Investment Manager
- Salary: $120K-$200K
- Bonus: 50-100% of base salary
- Promotions: 5 years
- Exit Opportunities: Senior finance role at an investee company, independent consulting
- Bonus: May exceed 100%
- Promotions: Most investment managers are not seeking other roles
- Exit Opportunities: Head of Portfolio Management, Chief Investment Officer
Key Skills Required for Investment Management
The key skills required for a successful career in investment management include excellent knowledge of the financial markets, the ability to analyze investments, and apply portfolio construction and management techniques. Keeping up to date on developments in the industry and the broader economy is also mandatory.
Also required are communication, presentation, and relationship management skills. For example, the ability to present and explain complex financial information in a clear and understandable way is highly valued when communicating with retail investors.
Investment Management Hours
Hours vary across different types of firms. For example, in asset and wealth management, the typical work week is about 60 hours, while in hedge funds or private equity, 80 hours or more is not unusual.
Investment Management Pros and Cons
- Very attractive remuneration
- Interesting and dynamic job
- Weekends are almost entirely free
- Strong career prospects and exit opportunities
- More time intensive than the traditional 40 hours
- High barriers to entry and slower progression compared to other areas in finance
- Requires ongoing study and continuous professional development
- Stress levels can be high, especially in challenging market conditions