management industry can seem a bit complicated. Don’t worry – over the
next two chapters, we will explain how buy-side firms operate so you can
easily understand how they fit together. Specifically, we’ll discuss:
1) The clients investment management firms serve
2) The investment styles used by the firms
Armed with this knowledge, you’ll be ready to organize your career search in
a targeted and effective manner.
Different types of clients
Typically, asset management firms are categorized according to the kind of
clients they serve. Clients generally fall into one of three categories: 1)
mutual funds, 2) institutional investors, or 3) high net worth. Some firms
specialize in one of the three components, but most participate in all three.
Asset management firms usually assemble these three areas as distinct and
separate divisions within the company.
It is critical that you understand the differences between these client types;
job descriptions vary depending on the type. For instance, a portfolio
manager for high-net-worth individuals has an inherently different focus than
one representing institutional clients. A marketing professional working for
a mutual fund has a vastly different job than one handling pensions for an
investment management firm. Later in this Guide, we will discuss how
different positions in the industry differ across the main organizing features
of the industry (client types and investment style).
Mutual funds are investment vehicles for individual investors who are
typically below the status of high net worth (we will discuss individual high
net worth investing later in this chapter). Mutual funds are also sometimes
known as the retail division of asset management firms.
Mutual funds are structured so that each investor owns a share of the fund –
investors do not maintain separate portfolios, but rather pool their money
together. Their broad appeal can generally be attributed to the ease of
investing through them and the relatively small contribution needed to
diversify investments. Investment gains from mutual funds are taxable unless
the investment is through an employee 401(k) plan or an Individual
Retirement Account (IRA). (If you take some money you’ve saved and invest
in a mutual fund, you’ll have to pay capital gains taxes on your earnings.)
In the past 10 years, mutual funds have become an increasingly integral part
of the asset management industry. They generally constitute a large portion
of a firm’s assets under management (AUMs) and ultimate profitability.
There are three ways that mutual funds are sold to the individuals that invest
in them: 1) through third-party brokers or “fund supermarkets”; 2) direct to
customer; and 3) though company 401(k) plans. The size and breadth of the
asset management company typically dictates whether one, two, or all three
of the methods are used.
Source: Vault Career Guide to Invesment Management
