Money makes money stays on top of mind among many investors. Whether to invest in stocks, bonds or other financial instruments depends on their investment risk appetite. But what if retail investors lack market understanding and financial analysis especially in the unexpected financial market during the COVID-19? What will be the best way to secure financial future? 

This is the reason why Asset Management generally and Mutual Fund & ETFs specifically will help their clients mitigate the risks to put a large amount of money in the right “pig”. This article will give you an inside look of Asset Management (AM) and How to become a portfolio manager in Mutual Fund & ETF?

1. What is Asset Management?

Asset Management includes Hedge Fund, Private Equity, Venture Capital, and Mutual Fund & ETFs. These Asset Management firms raise funds from individual investors and invests in different assets (stocks, bonds, derivatives, etc) to maximize return without assuming excessive risk in the long run. 

1.1 There are 4 types of Asset Management 

 

Hedge Fund (HF) Hedge Fund pools money from high-net worth individuals to beat market inefficiencies and apply any trading strategies including distressed securities, volatile stocks, derivatives, short selling, etc. The money is locked up long enough (several years) for Hedge Fund to invest in illiquid assets.  Hedge Fund Career Path will give more details about how Hedge Fund and how to get into this investment fund.
Private Equity (PE) An equity investment fund invests in private companies that have not been listed in a stock exchange. This institutional investor aims at a specific stage of company: growing stage or mature stage. PE will take large stakes in a company and acquire not less than 50% of shares in order to involve in management and strategies to ensure the growth of a company. To know how PE works, check Private Equity analyst & associate: Job Description, Salary and Career Path
Venture Capital (VC) Venture Capital pools money from wealthy individuals (angel investors), institutions and venture capital funds to invest in many potential early-stage companies (start up). Unlike Private Equity, VC will take minor control of an invested company. To know more about the differences between Venture Capital and Private Equity, check this article Private Equity vs Venture Capital – What are the Differences?
Mutual Fund vs ETF Mutual Funds & ETFs collect money from individual investors to invest in securities such as stocks or bonds. Mutual Fund focuses on investments that perform better than market index (S&P 500 or AXS 100). Whereas, ETF (an offshoot of Mutual Fund) holds a basket of index portfolios that are traded on stock exchange. These investment funds are not allowed to use more than 5% of total assets for investment.

 

 

Investment Banks also have their own Asset Management division to operate their own funds. Besides, this division advises clients where to put their money: Hedge Fund, Private Equity, Mutual Fund & ETFs, Venture Capital, Insurance Company, Pension Fund, etc. 

BlackRock is the leading asset manager worldwide (June 2020) with nearly 6.7 trillion euros of managed assets and the largest global ETF provider (Ishare).

Asset Under Management

Largest asset managers worldwide as of June 2020, by value of managed assets (in billion euros) 

Source: Statista

1.2 Where does the money come from?

Asset Management firms/funds raise money from a pool of investors:

  • Individuals: high net worth (at least $1 mil in liquid asset), affluent individuals or family. Besides investing money in Asset Management firms, these people may hire Wealth Management to manage their money and plan for future needs. 
  • Banks
  • Pension Funds 
  • Insurance Companies 
  • Endowment and other foundations

According to BCG, investors own more than 270 trillion USD in assets. Only 20% – 25% of these asset managed by Asset Managers (Hedge Funds, Mutual Funds & ETFs, Private Equity and Venture Capital)

Total asset under management

1.3 There are basically 7 assets handled by Asset Management

Equities: They are shares of company ownership traded on stock exchanges such as NASDAQ, NYSE, etc. Equities can be used to measure the value of an entire business, a single stock issued by a business, the inventory owned by the business.

Fixed income (bonds): a fixed income instrument that represents a loan made by an investor to a borrower (typically corporate or governmental). Investment in bonds also has low risk because bond owners are prioritized to pay back money before share owners when a company goes bankrupt. 

Commodities (gold, silver, petroleum, etc ): the tangibility differs this kind of asset from other financial instruments. Gold and silver have stable value while other commodities such as food crops fluctuate depending on demand. 

Real estate: Price of real estate depends a lot on several unexpected factors such as city projects, social-political scenes, ect. This high-risk investment may generate a promising return. 

Cash and cash equivalent assets: There are many forms of cash equivalent assets: money market instruments (short-term loans for operational capital of an institution), short-term government bonds, treasury bills, coin, etc. The interest is negligible and low risk.

Derivatives: The value of derivatives fluctuates depending on underlying assets. This is the contract between two or more parties who are eligible. Common underlying assets are stock options, bonds, forex, commodities, etc. 

Alternatives: cryptocurrency, SME mini bonds, social impact bonds (return comes when social outcomes achieved), etc. 

Besides Households and Mutual Funds as the biggest equity market owner, ETFs are getting more and more popular for the last 10 years.

 

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Research & Investment Sales & Marketing Support function

Portfolio Managers/Fund Managers: 

Make investment decisions based on the input research team. 

Manage research team including credit analyst, equity analyst, economists, strategies, etc.

.

Sales specialists: Keep relationships with clients to understand their needs. 

 

Marketing specialists: Attract investors through marketing plans.

Legal & Compliance: Maintain legality and compliance of the business, counterparties and clients.

 

Press&Commication: Promote reputations of business via press, CSR, etc.

 

Risk Managers: Anticipate potential risks of companies through qualitative and quantitative analyses. 

 

Technology Specialists: Ensure IT system smoothly and safely. 

 

Operations Specialist: Check the valuation of instruments and ensure the correct orders booked and settled.

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1.4 Should you become a portfolio manager in Mutual Fund & ETF?

Differences between Mutual Fund and ETF

Mutual Fund is an open-end company in which investors are redeemed through NAV (Net Asset Value). They buy shares of Mutual Fund and ownership is proportional to the number of shares purchased. There are many types of Mutual Fund that have a specific policy. For example, Money Market Mutual Funds hold the short-term, low-risk instruments of the money market while Bond Mutual Funds hold Fixed-Income securities/ treasury Bonds/ mortgage-backed securities. 

ETF consists of diversified portfolios (perform closely to fund index) which enables investors to trade directly on stock exchange. The types of ETFs also depend on the types of assets invested by Portfolio Managers such as stock ETFs, fixed-income ETFs, commodity ETFs, etc. 

In similarities, both types of fund offer pooled investors with diversified asset classes. Portfolio Managers in both funds manage Research Team whose responsibilities are financial modeling, market analysis, industry and asset research, etc. Entry level such as Research Associate or Analyst spend most of their time supporting the PM with information about investment opportunities. 

In differences, when it comes to management styles, Mutual Funds are mostly actively managed in which Portfolio Managers strategically buy and sell stocks and other assets in an effort to outperform the market

Whereas, the majority of ETFs are under passive management in which they track the market benchmark to perform closely to index fund such as S&P 500. Portfolio Managers in ETFs are still final decision makers but they do not spend much time on extensive research and stock picking (the automatic systems analyse the index performance instead). They will focus on analysing index data to diversify the portfolio in an effective way. 

In terms of time for trading, investors in Mutual Fund can buy or sell their shares in the fund only once a day (after NAV is calculated). In the meanwhile, ETFs’ index portfolios are traded continuously like the stock market which can be sold short or purchased on margin. 

Career path and Salary for Portfolio Manager in Mutual Fund & ETF

The structure of Mutual Fund & ETF could be hierarchy or flat. Flat structure enables an analyst to work directly with the director of Research or Portfolio Manager.

 

 

  Promotion Timeline Job Description Salary (USD)
Research Associate 1-2 years

– Do research to provide information for analysts/senior analysts or financial advisors, etc.

– Evaluate and answer customer inquiries/ requests.

– Involved in administrative work.

70K – 150K
Analyst 2-3 years

– Focus on investment research and modelling.

– Use Data Analytics to extract, analyze and mitigate risk 

– In charge of purchases and redemptions of mutual funds/ETFs trades.

– Support customers: inform mutual fund’s upcoming actions, fund liquidations, fund prospectus.

150K – 300K
Senior Analyst/ Sector Analyst 5 – 8 years

– Handle notable portfolios to provide added-value for clients.

– In charge of financial modeling .

Lead and conduct research studies on different asset opportunities.

300K-700K
Portfolio Manager  

– In charge of portfolio management. 

– Make investment decisions based on financial modelling and market analysis.

– Manage investor relationships. 

Construct and review performance reports.

500K-1MIL

In Mutual Fund & ETFs, a Chartered Financial Analyst (CFA) is beneficial for promotion to Portfolio Manager. CFA is the most recognized qualification for investment-focused roles in the financial job market. Asset Management firms need a proof for investors/wealthy advisors to trust their strong financial analysis. Thus, a Portfolio Manager – the representative of asset management firms, necessitates such a designation because he is the one doing most of the capital raising and client relationship management work.

Generally, Fund Managers start their career at the role of an associate in doing research, investment or handling administrative work at an Investment Fund. Entry-level in large Mutual Fund & ETF such as Fidelity, Vanguard, JP Morgan, etc usually requires candidates with at least 2-4 relevant experience and pass series 7/63/66/SIE before or during the first 3 month of employment. Besides, there are some other requirements for most of entry-level position in Mutual Fund & ETF: 

  • Deep understanding of financial market and ability to simplify complex financial concept
  • Technical and programming capabilities with detailed organizational skills
  • Ability to work under fast-paced environment
  • Good communication skills to introduce clients different investment strategies. 
  • Strong quantitative skills and hands-on experience with Morningstar Direct, Zephyr Analytics, Facset, Bloomberg or similar systems preferred.

Depending on additional skills, background or number of working years, it often takes at least 8 years to become a Portfolio Manager in Mutual Fund & ETF. 

For top 5% students or target schools, the chance of entering Mutual Fund & ETFs is possible. Getting relevant experience is beneficial for a full-time position after their graduation. 

For anyone who are out of top 5% students/target school or students with non-finance experience, they should intensively network to gain experiences in local banks or small mutual funds.

Besides, having work experience in Equity Research will give more chances of getting a job in Mutual Fund & ETF. 

Working hour in Mutual Fund & ETFs

Generally, working at Mutual Fund or any other institutional investors, 16 hour working per day is rare. Around 50-60 hours per week is typical in Mutual Fund & ETF.  Thus, working in Mutual Fund & ETF seems to be more balanced work-life than in Investment Banking (90-100 hours/week) and Hedge Fund (60-80 hours/week).

Exit opportunities for Fund Managers

Being a Portfolio Manager is typically an ending goal for anyone who works at the buy side. Most people often choose to stay as a Fund Manager for a long time. Otherwise, Portfolio Manager can move to bigger investment funds for a higher bonus.

2. How to get into Mutual Fund & ETF?

Non finance experience candidates should work in a local bank/small asset management firms to open the door to Mutual Fund & ETF.

2.1 Utilizing networking to get a job in Mutual Funds & ETFs

The benefits of networking are job opportunities (they may pass your CV to HR departments) and advices for recruitment and interview.

If you are an undergraduate, try to keep connected with your school’s alumni who used to work in Mutual Fund & ETF. 

Next, joining the CFA local community is a great way for Networking into the Buy-side. This way provides more chances to get an internship in local firms. Maybe luckily you will be recommended for the job in Mutual Fund & ETF. 

Besides, LinkedIn and other social media is a good way to find people who have experience related to your goal. Our Comprehensive Guide to Buy-side will show you how to network and tackle the interview process for Asset Management firms

2.2 Preparing a tailored resume and acing the interview

Profiles should include finance relevant experience and also a finance background so that quantitative skills, financial knowledge and interpersonal skills are highlighted. 

There is no fixed model for an interview process of Mutual Fund & ETFs. Basically, candidates will experience these challenges:

  • Non-technical questions check your motivations in working in Mutual Fund & ETF, your working experience, your strengths and weaknesses, etc
  • Technical questions and Brain Teasers check your understanding in Mutual Fund & ETF or some investment factors such as macroeconomics, financial modeling, valuation, etc. Here are some technical questions for Mutual Funds & ETFs:

What Is Growth Investing ?

What Is Value Investing?

What Is Hedging?

What Is Passive Investing?

What Is The Portfolio Turnover Of A Fund Supposed To Mean?

How Are Mutual Funds/ETFs Classified?

How Are Mutual Funds/ETFs Classified Based On Their Portfolios?

How Are Mutual Funds/ETFs Classified Functionally?

What Are The Different Plans That Mutual Funds Offer?

What Is A 401(k) Plan?

What Are The Advantages Of Investing In A Mutual Fund/ETFs?

What Is An Asset Management Company (AMC)?

What Is Load?

How Relevant Is The Expense Ratio?

  • Investment/deal experience shows a strong view about each of your investment/deals. Recruiters will check your analytical thinking and how you mitigate the risks for better return in investment. 
  • Stock pitches consist of 3 page write up, 10 slide presentation and 10-15 minutes for pitching. At least 2 investment ideas for the interview should be prepared before onsite interview. Link the next article of An
  • Case studies/modeling test includes statement modeling test, DCFs or valuation to project the company’s cash flow. Recruiters may also give some case studies in different industries or different assets. They will give some time for research before proposing a financial model and recommendations.

3. It’s time to consider working in Mutual Fund & ETF

Though the salary for working in Mutual Fund & ETF is lower than that in Investment Banking and Hedge Fund, Mutual Fund & ETF is still a lucrative career with better working hours. If you are preparing for applying in Asset Management, our Comprehensive Guide to Buy-side will help you get prepared for Resume, Networking, and Interview at Hedge Fund and Asset Management firms. 

 

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