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by Derek Loosvelt | September 17, 2002

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Educated guessing

Investment management, also known as asset management, is pretty much what it sounds like: a client gives money to an asset manager, who then invests it to meet the client's objectives. The potential clients of an asset manager can vary widely. Asset managers who work for mutual funds, for example, manage money for retail clients, while asset managers at investment banks often invest money for institutional investors like companies or municipalities (often for pools of money like pension funds.) Asset managers can also work for hedge funds, which combine outside capital with capital contributed by the partners of the fund, and invest the money using complex and sometimes risky techniques, with the goal of receiving extraordinary gains.

Where the money comes from

Asset managers buy their stocks, bonds, and other financial products from salespeople at investment banks, who are on what is called the "sell-side." (Asset managers are on the "buy-side.") Because they make commissions on every trade they facilitate, salespeople provide information (research, ideas) to asset managers, in an effort to get the asset managers to trade through them. For this reason, salespeople often shower asset managers with perks like sports tickets and expensive dinners at fancy restaurants. Asset management basically boils down to this: researching and analyzing potential investments and deciding where exactly to allocate funds.

Steady cash flow

These days, many investment banks are looking to grow their asset management businesses. Why? Because asset management is largely protected against the volatility of the market. Asset managers are generally paid a percentage of the entire amount they handle, whether they make or lose money for the client. Because their salaries are based on the amount of money they manage, asset managers make less money than investment bankers (unless they work for hedge funds.) On the upside, their workload isn't as heavy. Investment managers typically have contract terms of three years or less with their clients because, after all, you can't keep clients if you underperform.

Cash Influx

As the now-deflated bull market fueled the popularity of mutual funds during the late 1990s and early '00s, lots of freshly minted MBAs scored high paying investment analyst and portfolio management positions. This was a relatively new trend, as investment management is an industry that values experience (read: the older the better). Wealthy individuals and institutions are often wary about handing their money over to young people. For this reason, you're not going to find neophytes at the head of a big fund; new hires tend to be treated more like understudies. At the same time, young people are highly valued when it comes to investing in industries like high tech, which are dominated by young people. Mutual fund firms including Putnam, Fidelity and T. Rowe Price aggressively recruit fresh MBAs, and put a great deal into training and developing them for analyst and portfolio management positions. Other firms do hire a fair amount of recent B-school grads, but usually only from a few top schools.

High quality of life

Asset managers say they enjoy "great work hours" - an average of 60 hours a week - and in some cases, "the summer is a bit lighter." They gloat that, unlike traders and others on the sell-side, "there is a fair amount of stability." "Work is generally confined to the week," so asset managers can "have outside lives, thank God!" Throughout asset management, say insiders, there is a "get your work done and leave" attitude.

Suburbia and travel

After work, "there is minimal out of office interaction," as "the investment management crowd tends to be older and live in the suburbs." "If you're lucky enough to work with international stocks or bonds," says one portfolio manager in emerging markets, "you may be sent on reconnaissance missions - though not really at the junior level." Those who deal with domestic markets (including junior people) do get to travel to road shows, conferences, company tours and off-site meetings.

You are the one they are wooing

Asset managers often receive perks from the traders and salespeople who want their business. Usually, they try to butter up investment managers by providing them with "all their resources, which, besides research, also includes steak dinners and Knicks tickets." One contact also alludes to talk around the office regarding "the occasional night out with a client to Atlantic City or Flashdancers," courtesy of a generous salesperson. An insider from the asset management side of a major investment bank says "I have been to Yankees games, Knick games, the U.S. Open, a rock concert and eaten at over a dozen of the city's finest expensive restaurants. It's good to be the client." At the same time, a source from a major firm remarks: "It's important to be somewhat conservative. No firm wants to have it known that their guys have a lavish lifestyle and are out partying all night long. It might make it hard to convince the Carpenter's Union that you will do the best job possible managing their money."

Lower salaries, but high potential

Many industry insiders point out that salaries are "significantly lower than on the sell-side, especially at lower levels." One contact emphasizes the fact as "a significant disincentive for many cash-strapped MBAs. It is humbling to have graduated from a school where the median first-year compensation is $125k, when my first-year total compensation was $95,000." Both of those figures include signing bonuses, and that source goes on to add that "now that I am no longer getting a signing bonus, my salary has dropped significantly and will be in the five-digit range for at least a few years." One asset manager reveals, however, that investment managers who work at a sell-side firm (where the research also supports investment banking business development and/or trading) make a lot more money than buy-side research analysts - "easily by a multiple of two, and sometimes by even three, four, or five times." If you can suffer for a few years, sources tell us "the senior guys make much, much more." Explains one insider, "Think of the economies of scale: it doesn't take that much more to manage $10 billion than $1 billion in the same style, once the framework is in place. And 1 percent (the typical fee) of $60 billion is $600 million - not bad." And unlike investment bankers who may soon find themselves with smaller bonuses or without jobs, one of our contacts explains that "the industry does not swell and contract as much as the economy/financial services industry as a whole."

A great start

Our sources agree that asset management is "a great way for young people starting out to learn about financial markets." Those with undergraduate degrees enter asset management as fund analysts or trading assistants (depending on the bank, an asset management division may or may not have its own traders). Generally, undergrads go to business school after two or three years. Those in asset management start as analysts or associates, and make "recommendations but don't manage the fund." As you advance in the industry, first "you might manage a portion of a fund. Say there's a general fund, you manage the biotech fund part of it." Once one is a portfolio manager, "you can get titles like VP or senior VP or MD (managing director), but they're effectively meaningless." The pinnacle of the asset management career path is to be the chief investment officer of a firm.

To be a portfolio manager

Don't expect to be managing any portfolios too soon if you're at a major investment management firm - even MBAs generally start out as research analysts. Sometimes they're hired as fund managers, but only rarely and only if they have a proven track record of success as both managers and investors. "It's becoming progressively harder to become a portfolio manager" because "there are only so many portfolios to manage," and because "the money there can be phenomenal. Especially on a per-hour basis." Luckily, "some shops have wised up and made it so that good research analysts can make as much as, if not more than, good portfolio managers." As one source explains, "it is, after all, the good research analysts who generate the ideas that give portfolio managers their outperformance."

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