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A money manager oversees entire funds or segments of funds, both public
and private.
The magnitude of large pools of capital requires infinitely more sophisticated
management than ever before in the history of the capital markets.
It also elevates the competition for attention to any individual security, and
thereby demands greater sophistication in security analysis. When you consider
the responsibility in managing multi-billion dollar funds in institutions,
pension funds and 401(k) funds, mutual funds, high asset individuals
and so forth, you can well imagine why money managers look to the broadest
variety of analytical process available. And obviously, they cherish every
bit of information about each company that can contribute to the analytical
success. Money management is no longer a cottage industry.
The role of the money manager, in any category or specialty, has
become increasingly important as the financial universe grows and becomes
more complex. The vast influx of institutional funds, the growth of the
401(k), the increasing sophistication of investors and the influx of new
investors, the proliferation of new analytic techniques, the increasing use of
technology, and the internationalization of the capital markets—all have
substantially altered the financial landscape in just the past few years alone.
Also altered is the need for more advice and guidance for investors who are
unskilled in managing their own investments, and the need for managers
who can be trusted to invest to meet predetermined objectives. Thus, the
burgeoning of the money manager, the portfolio manager, the mutual fund
manager, the wrap account manager—in fact, more managers and experts
per capita than ever before.
The title money manager is not cut and dried. In addition to the people
who run the large funds, a money manager may be a portfolio manager, the
head of a mutual fund, or a bank trust department, or a pension fund, or
hedge fund, or a small pool of private investment capital, or a discretionary
account for a brokerage firm. Some stock brokers manage money for individuals,
IRAs, ESOPs, Keoghs, or even small institutions, such as non-profit
organizations with small funds. More brokers are now listing themselves,
even if without cachet, as broker and portfolio manager.
Fee-based asset management—the wrap account—has given rise to
portfolio managers who develop portfolios of other managers, both stock
and mutual fund. Their concern is not the stocks in a portfolio, but rather
the investment and risk objectives of individual managers or funds. They
are performance experts who manage large funds of money, usually from
individuals, and who purchase the services of other funds or institutions.
Some stockbrokers have developed clienteles for whom they perform this
service, in addition to their classic brokerage activities.
Most money managers tend to use the basic research supplied by their
own or other research departments, including research boutiques, to which
they apply their own judgment. Money managers of smaller funds do more
of their own research because they can be in positions where they have to
make decisions quickly. They may not have the time to research an individual
investment situation as completely as might an analyst. They do,
however, combine instincts and training with reading and computer screening,
and more and more, they meet with company management.
An increasing number of managers rely heavily on computerized models,
and are concerned about information that can influence a decision, not
general, nice-to-know news about the company. Their focus is on news that
can affect their models.
Like brokers and analysts, money managers function in many different
categories, each of which has different investment criteria. Money managers
handling different portfolio sizes—$50 million and under; $50–100 million;
$100–250; $250 to $500 million; $500 million to $1 billion; and over $1
billion—will generally have some common characteristics. But beyond that,
the investment criteria—objectives and risk parameters—for each group
will change. This means, obviously, that the kinds of companies each category
will attract differs. For example, a company with a market value of
$100 million will certainly get a better hearing with money managers managing
$250 million or less than it will from managers at the higher end of
the spectrum.
Managing money, too, is a precarious job, since it is directly performance
oriented, with very little margin for error. Thus the money manager
tries to be as informed as possible in order to have a basis for judging the
research factors. Increasingly, money management looks to objectives,
whether mandated by ERISA (Employees Retirement Income Security Act)
or by financial and marketing goals. Pension fund money is considered to
have been managed prudently not simply when its asset value is increased,
but when it meets predefined investment goals and criteria. This concept is
becoming more ubiquitous in all money management. Thus, while the classic
responsibility of the institutional portfolio manager—the person specifically
responsible for the performance of all or part of the portfolio of
securities for mutual funds, pension funds, banks, insurance companies,
and so forth—is to choose securities that increase the value of the full portfolio,
new criteria tend to mitigate performance measurements. And obviously,
the more sophisticated hedge fund is a useful tool here, as well, for
managing performance.
The parameters of each portfolio are very different one from the other.
Some funds have portfolios that are passively managed, and drawn to match
an index, such as the S&P 500. Some portfolios are actively managed, and
chosen for growth, some for rapid appreciation, some for income. Mutual
fund portfolios are most often highly specialized, and can be defined by an
extraordinary number of different characteristics, such as risk parameters,
industry group, geographic region, size or age of the companies within the
portfolio, and so forth.
Funds are managed by fundamentalists, chartists, and subscribers to
virtually every market theory ever promulgated, and are so identified in the
fund’s prospective.
This growing thicket of money managers poses an interesting problem
for the investor relations practitioner trying to advocate a client’s stock.
There are no sure answers, but there are some rational approaches. For
example, examining a portfolio will give some clues to the kinds of securi-
ties the portfolio manager might accept, keeping in mind that investment
styles and practices may change rapidly, in response to a rapidly moving
market. Managers’ interests change as well. Certainly, talking to the manager
will help. For a mutual fund, the prospectus defines the fund’s parameters,
but not the techniques used by its manager to select stocks.
Obviously, index funds are exempt from the investor relations.
The best approach may be to use data from the myriad sources that
have sprung up in recent years, as well as your own experience and contact
list, to choose the fund that best suits the security, in terms of size, distribution,
industry, etc. To best inform the institutional investor, examine the
portfolio to determine the best approach to the manager.
This is further complicated, of course, by the fact that most portfolio
management, like the market and the economy, is fairly dynamic, and
parameters change as market conditions change. This means that to deal
with any institutional portfolio manager, you have to keep checking.
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Disclaimer
