What is the purpose of investment management, asset management and hedge funds?

Careers in investment management, asset management and hedge funds are all about generating as much money as possible for your clients by playing the financial markets. Huge sums of money are invested in companies, organisations and often governments in order to generate a healthy return.

Cash is extremely important for companies. If an organisation wishes to expand, deliver a new service or open another office, money is needed and often this cannot be sourced from within.

How do investment management, asset management and hedge funds function within a company?

Consequently, companies look for capital elsewhere as a way of facilitating their expansion. This is where investment management, asset management and hedge funds come in. These guys are able to provide the capital for companies to expand. They are definitely not charities, though. In exchange for assisting companies with their cash needs, funds will demand a return, a stake in the company or an annual dividend to make money on top of their investment.

These departments usually sit within a huge bank or act as a stand-alone fund. The principles are the same though; you need to have an extremely thorough understanding of the area in which you are looking for investment opportunities. Considering you will often be investing millions and millions of pounds at a time, you need to know that the decisions you are making are backed up by some solid evidence. Even then, however, things can still go wrong!

Should I get into this industry?

In order to make money in the markets, you must have an implicit knowledge of the industry you invest in and the events that affect it.

There is no certainty in this industry and the recession is a particularly good example of this. You’re effectively betting on the outcome of future events as a way of doubling, tripling and quadrupling your money. It’s a huge industry and staff are usually paid very handsomely!

What are the differences between the roles of investment management, asset management and hedge funds?

Analysts are required to delve into the nuts and bolts of any proposition to better understand what is on offer and what is at stake. If they get it wrong, potentially billions of pounds could be lost. Financial modelling, keeping up-to-date with current affairs and situations that might affect the proposition, and reporting this to investment managers is a crucial part of the process.

Investment managers are the chaps responsible for investing clients’ money. They rely on analysts to feed them market information and to help them identify worthwhile opportunities. The decisions fall with the managers, however. With this in mind, they get involved in all aspects of the process, understanding the clients’ needs, the opportunities available, and the best ones to go with.

Broadly speaking, these funds invest in equities (shares) and bonds. Investing in equities involves taking up a stake in a company. This is the more risky of the investment choices available. Bonds, however, are guarantees given by huge companies and governments to provide an annual return of a particular rate agreed up front. They represent the more stable side of the business, but provide less of a return.

Generally speaking, investment and asset management practices are usually arms of big banks, although there are lots of companies that only act as funds.

Hedges funds operate in a similar way. However, they are usually subject to less regulation and operate on behalf of a limited range of investors rather than thousands of stakeholders.

So, if you’re all about the money and reckon you could keep on top of those ever fluctuating markets to make the cash roll in for your clients (and yourself!), a career in investment management, asset management and hedge funds is definitely one to consider!