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Finance Careers – Portfolio/ Asset Management

In Investment Management by Gaurav SharmaUpdated On:

What is Asset Management?

Asset Management is the umbrella term for the business of managing financial investments on behalf of investors including risk management, asset selection and other management activities. The whole point of asset management is that a professional asset manager should be able to provide a much better return to individuals or entities who do not have the expertise or the time to do so themselves.

Pension funds, mutual funds, sovereign wealth funds, university endowments, high net worth individuals etc., all have assets that need to be managed by asset managers.

Asset Management vs Portfolio Management

Generally speaking, an asset manager analyses individual assets at a more granular level. For example, they may look at a particular stock and then decide whether to purchase the stock for their clients based on its anticipated performance.

The portfolio manager on the other hand, is supposed to look at a bigger portfolio of assets rather than individual investments. The difference exists because individual assets may have specific correlations which can impact the overall risk and diversification of the portfolio. And the portfolio manager has to take this correlation into account as well. That being said, it is not uncommon for both of these rules to be merged and used interchangeably in certain companies.

Asset and portfolio management is generally large-scale with the investment value runs into hundreds of millions. Professionals who look at small retail investors are instead called financial planners or advisers. The difference can be significant because you’re looking at each individual separately rather than a pool of assets.

Job Description

The exact role of an asset manager can shift considerably based on the type of investments and clients that they are handling. For example, pension funds are regulated by the governments and are restricted in terms of the risk they can take. However, an asset manager catering to multi-millionaires in a private setup on the other hand would have far fewer restrictions. This can also have an impact on the type of assets that you would be managing.

The myriad responsibilities of an asset manager may be categorized into three broad buckets: analyze, transact, manage.

Analyze

  • The asset manager should be comfortable looking at all asset classes including equities, fixed income, alternative investments, derivatives, multi-asset investments etc.
  • A deep understanding of the client base is also crucial. For example, if you are managing the assets of a pension fund then knowing about retirement investment products and services would be required.
  • The client’s investment policy statement is what determines the overall direction and strategy for the asset manager. This overarching document is foundational to the work of an asset manager and they must work closely with the client and the sales team to understand the requirements and prepare this document.
  • Risk analysis and mitigation is a key component of an asset managers responsibility.
  • Asset managers at various skill levels also assist with the preparation of quantitative tools and models necessary for investment analysis.
  • Although the asset manager is not directly involved in onboarding new clients, they still have to assist the sales team with client onboarding activities. This usually means developing comparative portfolio analyses or investment implementation strategies and other marketing documentation for prospective clients.
  • At the end of the day, the key performance indicator for an asset manager would be the returns that they are generating over the benchmark. While all other tasks are important, this is what the differentiator is.

Transact and Adjust

  • The asset manager is responsible for making the right trades at the right time based on the analysis. The ability to exit an investment at the right time is often more valuable than knowing when to make an investment.
  • Because of the highly dynamic nature of markets, an asset manager might have to spend a lot of time rebalancing the portfolio in accordance with the client’s investment policy statement.
  • Other adjustments like responding to specific client requests or changing circumstances, resolving concentrated positions or other dynamic aspects of investment management.
  • Preparation of daily weekly or monthly reports is also a transactional activity that needs to be performed by junior level asset management staff.

Manage

  • Management includes periodic account reviews of the entire portfolio.
  • The asset manager also has to work closely with the other teams for regulatory compliance and reporting.
  • Maintaining and updating the client investment policy statement is also part of general management. This may be done on the basis of client meetings or any major shifts or events.
  • The asset manager has to be able to define and articulate the fund’s philosophy, approach and performance.
  • You must remain at the top of all developments and events that can significantly impact the quality of any of the assets under your management.

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Qualifications and Skills

Understanding investments – The world of investments is truly endless. You have equities, bonds, real estate, alternative investments, commodities, currencies etc. spread across hundreds of countries. And then you have thousands of derivative products based on all of these asset classes. If that wasn’t enough, you not only have to look at them individually but collectively as a portfolio after accounting for any correlations.

Each of these asset classes can be affected by millions of factors including business performance macroeconomic factors, politics, geopolitical risks, technology, regulation, behavioral science and so many other things. Considering all of this, investment management becomes as much of an art as it is an exact science.

Understanding clients – Each client has different financial goals, risk aversion and appetite for losses. These can also change dynamically based on circumstances. The first thing that an asset manager must do is understand these requirements fully and create an investment policy statement for the client that works to achieve these goals. For example, university endowment funds might require a stable cash flow each year. Whereas the goal for a pension fund might be to minimize risks which may be achieved by investing mostly in government bonds or AAA securities.

Understanding regulations – Pension funds, mutual funds, sovereign wealth funds etc. are highly regulated in most countries. The reason for this is obvious – any serious losses here can cause significant real pain to a large number of average citizens. The need to protect these investments is usually considered more important than asset growth. These restrictions may be in the form of limiting the maximum amount that can be invested in riskier assets like equities, high yield bonds or alternative investments.

Modelling and analysis – In your early years, you are likely to spend the majority of your time gathering data from a myriad of financial databases and using that data to perform investment analysis. As you progress through your career, the focus shifts from quantitative analysis to more strategic level considerations.

Managing biases – Investors suffer from several cognitive and emotional biases like confirmation bias, risk aversion, herd mentality, gambler’s fallacy, familiarity bias, hindsight bias, survival bias and a near endless list of “biases” that would make even a psychologist’s head spin. A good asset manager must learn to control the adverse impacts of these biases on their decision-making process.

This might seem like a weird addition to this list, but the fact is some of the greatest asset managers in history have stumbled due to psychological or emotional failures. The ability to detach yourself emotionally from your investments and to think about every decision as a robot is priceless in any sort of investment role. Investors sometimes panic unnecessarily or are subject to other biases. The urge to make knee-jerk reactions can be strong in the face of immense pressure and that is where experience comes in.

Building your Resume for Asset Management

The first thing to determine before building your CV is the amount of client interaction that is expected of the specific role that you are applying to. If it is likely that client direction might be at a minimum, you don’t want to focus too much on relationship management or sale experience. Your main focus, therefore, should be on your technical prowess. Highlight any and all experience that you have with respect to security and market analysis. If you have done any trading based on fundamentals or if you prepared any security research reports as part of your academic curriculum, make sure to talk about those things.

You need to possess a fundamental understanding of how securities are priced, how they’re treated and how risk is calculated and managed. Try to highlight all of these aspects in your CV to showcase that you have a thorough understanding of what exactly is required of the role.

If you have some relevant work experience, then go out of your way to highlight the fact that you know what you’re doing and that you can hit the ground running. If you lack any relevant experience, then it’s not too hard to spend a few days doing some security analysis and preparing a few dummy reports just for the interview. It highlights not only your dedication and seriousness, but will also give you an opportunity to steer the conversation towards a specific direction.

Academics and Certifications

Academic success is usually considered an important factor not just for asset management but for any banking role. Ivy League, Oxbridge or whatever are the top universities in your country, always add significant value to your CV. But more so than the University, having top grades is even more important. The work you are expected to do is highly complex and quantitative in nature and therefore recruiters want to be on the safe side by hiring overachievers.

In terms of certifications, the CFA curriculum has been purpose built for this role. Not only would you look at most of the major asset classes, there is a great deal of focus on ethics and portfolio management which is exactly what is required for this role. For many banking roles, the CFA is nice to have. But for an asset management role I consider it almost mandatory and so do a lot of reputable asset management firms.

Career Resources

These are the best certifications available for Portfolio and Asset Management aspirants. The best part is that these certifications may be completed in 3-5 days if you are pressed for time, but they still make you earn it.

Resource TypeResource ProviderLearn More
Best Course/ Certificate (Portfolio Mgmt)Portfolio Management Professional Certificate from the New York Institute of FinanceCheck Course Details
Best Course/ Certificate (Asset Mgmt)Professional Certificate in Asset Management from the New York Institute of Finance

Check Course Details
Advanced CertificationAdvanced Portfolio Management Professional Certificate offered by the New York Institute of FinanceCheck Course Details

Salary and Bonus

Starting asset management salaries in financial hubs like New York and London range from USD 70K to USD 100K. Keep in mind we are only talking about the first 1 or 2 years on the job here. There is also variable component on top of this which is usually modest for the first few years.

Becoming a full-fledged portfolio manager who manages a fund of their own is quite an achievement in asset management. That is the level where you can expect compensation to be well north of half a million dollars. This can be much higher based on the size of the fund that you manage and there is strong correlation between Assets Under Management (AUM) and average compensation for a fund. The big fund managers can easily pull several million dollars in compensation.

A Normal Day in Asset Management

An asset manager’s day usually starts well before market hours with the portfolio manager or some other senior executive heading a meeting of all analysts and research associates. All material news events of the previous day are discussed and their potential impact on the portfolio is analyzed. Client specific issues might also be discussed depending upon the nature of the fund being managed. Any outstanding issues are tabled, and action points agreed upon.

How the rest of the day progresses depends upon your specific role. Client facing executives will spend most of the rest of the day in client meetings or calls. They would also have to perform onboarding or other maintenance activities for their clients. The research staff will instead work on their assigned workload which may consist of macroeconomic analysis or looking at individual securities from an investment perspective.

Work Hours

Working hours for asset management are pretty decent by banking standards. The only catch is that you have to be an early riser so that you can catch up on crucial events before the market opens. It is not uncommon for asset managers to spend an hour at home catching up on the news before even heading off to work (or you can do that on the train).

The good news is that you are not expected to stay in office till late evening and you are not expected to work on weekdays either (unlike Investment Banking) because the markets are closed.

Career Path and Progression

Organic growth

The ideal career path for asset management starts at the research associate level where you are spending the majority of your time poring over financial data and calculating asset prices. You should try to look at a broad variety of asset classes developing an overall understanding of how these assets are priced. This lays a strong foundation where you can be confident about your technical abilities.

The next phase would be moving to a portfolio manager role once you’re comfortable with the technical stuff. You do not really have to wait to be promoted within your own organization. It is highly likely that if you move to a smaller fund you would have the opportunity to get a portfolio management role much sooner. Grab any such opportunities because your performance managing this fund is what is going to open doors for you elsewhere. As you build some reputation, you can move to a bigger fund and the compensation will likely grow in proportion.

Hedge Funds

While there is some difference in terms of investment philosophies and risk management between hedge funds and asset management, the essential goal is very much the same. If you find that you are too much of a risk taker and like to think outside of the box and not be restricted by government regulation, then you should consider a move to a hedge fund.

I would just like to add here that there are so many different types of funds out there that you can almost certainly find something to your liking with enough growth potential to satiate your ambitions.

Starting your own fund

Once you build up a reputation, it is entirely possible for you to start your own fund. It might be harder to get clients, but you will be retaining a bigger share of the pie. If you have the entrepreneurial drive for this, then it’s always good to have it as an option. Just remember that it will probably be the hardest thing you would ever have to do!

Passive Investments, Automation – Will Asset Management die off?

One concern that graduates going into asset management have is regarding the future of the industry itself given the increasing focus on passive investment strategies or AI. The truth is that automation and AI has put almost every single sector and industry in its crosshairs when it comes to future prospects. But at the same time, they open up a lot many opportunities for those willing to adapt to changing times.

During the Industrial Revolution, we had machines being built that could do the work of 40 men. But economic prosperity only increased. Same thing with computers the last few decades. No career is safe from automation but if you’re offering something unique, something that is adding value, then you will always be in demand. Just don’t stop running.

And if you are really interested in the world of FinTech, here is my article to get you pointed in the right direction.

About the Author

Gaurav Sharma

Gaurav started his career as a Corporate and Investment Banking intern at Citi in 2009 and eventually ended up as an Associate Director at Standard Chartered Bank’s Wholesale Banking division a few years later. By 2016, Gaurav was consulting FinTech start-ups in London with product development in the institutional banking space. He also advises mid-market Private Equity/ Asset Management firms and Banks in North America and Europe with investments in the financial services and FinTech sector. Gaurav writes on topics ranging from European Union banking regulations and FinTech to Blockchain startups and the inevitable rise of our AI overlords! He has an Engineering degree in Computer Science and an MBA with a double major in Finance and Marketing. He is also a Certified Financial Risk Manager.