This article aims to aid in the education of novice investors and students of financial services by investigating the principles for the truly effective management of investment funds. The major considerations are looked at in terms of the role they play in ensuring that the standard of management of an investment fund is capable of delivering upon its objectives.
Good fund management is fundamental to providing an investment portfolio that is sufficiently diversified in order to mitigate investment risk, as well as stable and opportunistic enough to maximise the returns achieved.
There are many factors which influence whether or not an individual or company can successfully manage a fund and deliver upon its stated objectives. These include the following areas:
The ability to be able to use and understand all elements of state of the art quantitative analysis systems is vital to a successful fund manager. This facilitates informed and systematic investment to be made which is underpinned by comprehensive statistical analysis and historical data. The use of technological solutions is therefore vital to ensure efficiency in the research processes.
Investment Risk Management
Monitoring and identifying the existing and emerging risks that are attached to certain investment activity is crucial so that deductions can effectively inform investment strategy. State of the art risk management software, manual processes and individual expertise are all fundamental to ensuring that this is completed successfully and so those seeking a fund manager, or those who wish to become fund managers, must again treat risk management as a key priority.
Consistency and Transparency
When aiming to define realistic investment goals and objectives a fund manager should demonstrate a level of consistency in their investment activity. This is because it enables a valid picture of investment behaviour to be formed in the mind of the investor and also allows for historical success to be achieved, communicated and evaluated.
As such, commitment to a high level of transparent disclosure to investors is also of vital importance for a successful fund manager. Keeping investors informed with accurate information, whether it relates to the initial strategy or the results achieved, allows psychological barriers to be overcome and potentially damaging legal issues to be avoided.
It is very important that a fund manager be able to demonstrate a detailed understanding of differing investment landscapes from a wide range of markets around the globe. The identification of global investment trends enables opportunities within other markets to be investigated and exploited as well as enabling the fund to avoid areas in which there are threats to investment stability and profit.
This refers to the ability to implement an investment strategy which is able to persevere through varying market and economic conditions. Short-term gains in alternative investment areas can be understandably seductive to some fund managers but the pursuit of them can lead away from the defined investment strategy and will often lead to unstable or damaging returns.
A stable fund management team is important in order to develop a team who have a deep and detailed understanding of the areas in which investments are made to grow the expertise and increase the success of the fund. A stable team is also a marketable commodity to new investors looking for proven expertise and track record which is vital to the on-going health of the organisation.
Environmental, Social and Governance (ESG) Issues
In recent years, we have seen society and legislators take a greater focus on responsible investing. Which means fund managers require a thorough understanding of existing and emerging ESG (Environmental, Social, Governance) issues.
The UN Principles for Responsible Investment (UNPRI) provide a framework to ensure that individuals and organisations can adhere to a code of best practice for ethical and responsible investing and should be investigated and clearly understood by investors and investment professionals.
There are many major considerations for novice investors and aspiring investment fund managers, factors that have significant influence over investment success. However, if each of these factors is either in place or adhered to at all stages of the investment lifecycle then the management of a fund is far more likely to become more efficient and profitable over the long-term. As such each factor should be considered as vital to future success by novice investors and aspiring fund managers alike.