Fund Management and Investment Consulting

The art of investing for the long term.

At a very basic level, you could say that fund management is all about investing other people's money, and earning a fee for the privilege - be it from the man on the street or from huge institutions such as pension funds.

Broadly speaking, fund managers (known also as asset managers) fall into two camps: active fund managers and passive fund managers.

Active asset managers are those who have to use their skill to beat the market average and often take bigger risks with their investments for better rewards. Beating the market average is known as 'generating alpha'.

By comparison, passive management, or index tracking, involves selecting a portfolio of assets whose value will match that of a financial index - such as the UK's FTSE 100, Germany's DAX or France's CAC 40. Simply generating returns that match the market is known as 'generating beta'.

The array of potential fund managers and fund management strategies is huge and can be confusing. Pension fund trustees (who are often not finance professionals) use investment consultants to help them choose which fund manager to put their money with.

Key players

The investment consulting industry in Europe is dominated by two key players - Watson Wyatt and Mercer. Other significant players include Aon Consulting, Hymans Robertson and Hewitt Associates.

Roles and career paths

Jobs in fund management fall into two broad categories:

· Investment roles - These roles are all about investing the money managed by the asset management firm. People in investment roles are usually either analysts - who analyse the best companies and products to invest in - or portfolio managers, who are the people with the final responsibility for investment decisions on a range of funds across their asset class - be it equities, fixed income or alternatives.

· Distribution roles - Distribution covers roles such as sales, marketing, product development and client servicing. It's all about selling a fund manager's services to clients. Most of these jobs are focused on winning new business or maintaining existing relationships.

Most recent graduates starting out in a fund management firm begin life as research analysts.

This less sexy role involves working closely with the fund managers, visiting companies to assess their investment potential, and sifting through buy and sell information and company reports.

As in investment banking, there are also a whole range of middle-office jobs in fund management. These include areas such as compliance, operations, performance measurement and risk management within asset management. However, the higher paying roles are in investment and distribution.

If you want to work in investment consulting, jobs fall into two key categories - asset allocation and fund selection.

Asset allocation people advise clients on whether to invest in equities, bonds or other financial products so that they can earn the returns they need to pay their pension commitments for the next 30 years.

Fund selectors spend their days analysing individual fund managers and questioning them about the nature of their investment strategy, then writing reports for pension funds on the firms' strengths and weaknesses.

Pay and rewards

Historically, fund management pay hasn't been on a par with investment banking. But it's still been pretty good. However, fund managers, like anyone else in the financial space, are feeling the pain of reduced bonuses. In a good year, bonuses in fund management often make up multiples of base salary.

A senior fund manager in the UK can earn a base of up to 140k, according to recruiters Morgan McKinley, rising from a junior salary of 38-45k. Research analysts start out on 30-45k, which increases to a maximum of 120k at the senior end.

In Continental Europe, an asset manager with five years' experience can expect €55-90k. After 12 years that rises to €90-150k, according to recruiter Robert Walters.

Skills and attributes

If you want to be a fund manager, a few things will come in useful.

You'll need to be passionate about investing and good at filtering large quantities of data. Wouter Weijand, chief investment officer, high income equity, at Fortis Investments, says: "The issue is that you will be overloaded with information, and you can only use a very small percentage of it. You need to have a feel for what is important and have the confidence in your own judgment to not follow the pack."

"From a research point of view, you will be looking at annual reports, company balance sheets, understanding broker analysis and performance indicators, so good numeracy is a solid foundation on which to build your skills," says Laura Everingham, head of graduate recruitment at fund management company Fidelity International.

Investment consulting is all about relationships with clients, and explaining often complex concepts to relative laypeople. So, as well as the technical know-how, communication skills are vital.

"You will be sitting in meetings with CEOs and FDs on one side and people from the shop floor on the other," says Patrick Race, a principal at Mercer. "So the need to be able to communicate the intricacies, say, of an inflation linked swap programme in the same meeting is pretty challenging."