What is investment management?

Investment management is an odd sector. At one level it seems very diverse, but on another, it all seems very similar!

Investment management is about investing large pots of other people's money to make a profit for them, for your institution (though usually this will be based on a set fee), and for yourself as the fund manager (in the form of performance bonuses).

This is not banking; it is not about the investing of depositors' money. It is about managing for growth or income money that has been specifically put into the pot as a so-called principal investment. These pots of money come from many sources:

• Collective investments, such as unit trusts (often called asset management).
• Pension funds: people’s contributions to their pension fund are invested, and thus the actual value of people’s pensions depends on the growth that has been generated (often referred to as fund management).
• Insurance companies: these invest the premiums they receive to make a profit. Other companies also operate in this market (often known as institutional investment).
• Private banks and wealth management firms: these mainly invest in collective schemes, but they also make direct investments on behalf of their ultra-wealthy clients (often called portfolio management).
• Governments: many governments, especially in the Middle and Far East,have massive funds available for investment (often known as Sovereign Investment Funds).

These funds can be invested in literally thousands of different markets, when all the different shares and bonds are considered. And it is not just shares and bonds. Many investment funds will specialise in areas such as property (which is a very large business), commodities, or even race horses and art!

What roles are there?

In reality there are two types of institution:

• those that sell and communicate directly with the public;
• those that just manage investments.

These are two very different businesses. Those that sell to and communicate with the public must have a substantial operations team. While many of the funds may actually be sold by independent financial advisers (see Financial Adviser), the institution itself will need to carry out all the administrative functions necessary to complete the sale. It will also have to communicate regularly with the customer about the performance of the fund and the tax situation, etc. In addition, it will need to send funds directly to customers – either on a regular basis if the product is designed to provide an income, or on a one-off basis if and when the customer cashes in the investment.

Pension funds also need to communicate with their investors, to let them know what kind of performance they are getting. As a result, many of these firms have large back office operational teams (see Operations and Administration).

The other type of investment management firm doesn’t have this problem at all. These institutions concentrate purely on making investments on behalf of other organisations. For example, many pension funds don’t run their own investment group (after all, it is a complex and risky business; it calls for special skills and resources; and it requires a willingness to be ruthless with underperforming investment managers). Instead, such funds prefer to employ external investment management specialists. Firms like Barclays Global Investors (a division of the bank) have grown up specifically to manage investments on behalf of other institutions. They have vast portfolios of investments; UBS and BGI (which are the biggest) have more than $2 trillion each invested at any given time! To put that in context, the UK economy generated around $2.3 trillion in Gross Domestic Product in 2006.

The key positions in these firms – and in those that sell and manage their own funds – are the asset manager/portfolio manager/investment manager roles (they can be called any of these). Their job is to allocate the investments and generate as much growth as is allowed by each fund’s structure. For example, a fund that is sold as a UK commercial property fund must be invested in commercial property, bar any cash in the bank waiting to be invested or distributed to investors.

These asset managers/portfolio managers/investment managers are effectively the customers of the investment banks (see Trader), and their world looks very similar to that of an investment banker. Those investing in ordinary stocks and shares will have screens on their desks with their portfolio of investments highlighted, together with other screens showing market movements. However, they are in the business of 'allocating' funds. They spend their time working out which general investments will match the requirements of the fund (is it for growth or income? Is it high return/high risk or low return/low risk?) and they will only trade to rebalance these profiles.

However, a dynamic new type of fund manager has developed in recent years – the hedge fund manager. These people are not as tightly constrained in what they can do as traditional fund managers, and have much more scope to trade in order to take advantage of shifting markets.

So is there a role for you?

Yes, there are jobs at all levels – from those in operational back offices, where payments are processed and references checked, to jobs that will see you sitting in the boardroom presenting to your client's board on the biggest deal of your life. In addition, there are many support roles in compliance and credit-checking. Even dealing room traders rely on the business and corporate banking business for their jobs.

Key opportunities are outlined in our career profiles section:

Operations and Administration

City Operations and Trade Support

Trader

Credit Risk Officer

Compliance Officer

Equity/Financial Analyst