eFinancialCareers

A game of patience, profits and super funds.

Fund managers are professional investors. They invest money on behalf of their clients, which include superannuation funds, insurance companies, unit trusts (institutional investors) and others, with a view to making it grow.

There are two basic kinds of fund:

1) Passive funds: Also called 'index trackers'. They select a portfolio of assets whose value will track that of a financial index. A fund that tracks the S&P ASX 100 index will aim to follow the value of Australia’s 100 biggest companies, for example. The investment decisions of passive funds are typically made using computers, meaning fund managers working on them have a relatively easy life.

2) Active funds: Active fund managers buy and sell financial products in an attempt to outperform the rest of the market. Active fund managers correspond to most people’s idea of what fund management is: they invest in products they hope will rise in price over time, in order to sell them at a profit.

Fund managers invest in everything from shares, bonds or real estate, to commodities, such as oil, wheat or aluminium. Different clients are prepared to tolerate different amounts of risk, so fund managers usually run several funds. Some offer fast growth and high risks; others offer slower growth and smaller risks.

Trends

Australia’s fund management industry has grown rapidly since the Australian government introduced compulsory superannuation contributions from employers in 1992. The contribution rate now stands at 9% of every employee’s income, and in 2008 will result in a AU$70bn inflow into managed funds. Favourable tax treatments have also encouraged inflow into managed funds.

In June 2007, the total funds under management in Australia topped AU$1.3bn, generating AU$1.4bn of management fees for the fund management industry.

But the global market contraction has hit funds hard. Fund flows in the last quarter of 2007 were the weakest since 2003, says actuarial and research house Plan for Life. Retail managed funds fell by 1.9% during the same quarter to $589.9bn.

Gross inflows for 2007 were up 37.9% over 2006 to $337.8bn, with St George, Commonwealth/Colonial, ING, National Australia/MLC and Macquarie experiencing the highest percentage increases.

Plan for Life says most major managers lifted their wholesale funds under management in 2007, with AXA Australia up 21.1%, AMP up 20.1%, State Street Global Advisers up 19.7%, National Australia/MLC up 19.6% and Vanguard Investments up 13.3%, but UBS Global Asset Management fell 13.8% as a result of a significant decrease in business, and Commonwealth/Colonial fell 5.9%.

Goldman Sachs JB Were analyst Ryan Fisher says the results are “definitely indicating that earnings are coming down – it's just a matter of how much, because we have had this big drop in funds through the market impact”.

Key players

The Australian funds management industry is dominated by the major Australian banks. Commonwealth Bank is the biggest fund manager in the country with AMP Capital and Axa Australia next in strength. There are numerous mid-sized and smaller players, such as Perennial, Perpetual and Maple Abbott Brown, which were created by fund managers who have left senior positions in major banks or fund management groups, or by stockbrokers.

As well as the local players, 17 of the top 20 global asset managers have established a presence in Australia, with brands such as State Street, Barclays Global, Fidelity Investments, Vanguard, PIMCO and UBS Asset Management all prominent. Large global money managers have made Australia a key part of their Asia-Pacific expansion strategies, using it as a base for both investment management activities and related functions, such as custody, investment administration and securities processing. Invest Australia says there are more than 100 “significant” investment managers in Australia.

Roles and career paths

Working as a fund manager used to involve everything from analysing and investing in products to persuading new clients to put money into the fund. Today, however, fund managers focus on the business of managing money and other people are employed to do the rest. If you don’t fancy being a fund manager, you could work as a marketer, research analyst or operations expert.

Fund management marketers wine and dine potential clients in an effort to persuade them to invest money in their fund. They also manage relationships with existing clients, who might threaten to pull their money out. And they meet investment consultants and play a role in the development of new products.

Analysts working in fund management help steer fund managers in the right direction when it comes to choosing assets to invest in. They spend their time scrutinising companies’ results and meeting with management to discuss strategy. They then write lengthy reports communicating their conclusions.

Like their counterparts in investment banks, operations staff working for fund managers do everything from working in IT to settling and reporting trades, project management and customer services. However, many funds have outsourced the administrative aspects of their operations to global custodians (see global custody sector for more information).

Pay

Fund managers and research analysts are the best-paid employees at fund management firms. Melissa Tal, at recruiter Michael Page, says entry-level salaries are AU$55k-$60k plus bonus, with managers earning about AU$175k-$200k+, plus bonuses which vary considerably.

Analysts earn AU$80k-$100k with bonuses of between 50% and 100%, says Lee Rochester at recruiter Futurestep. This rises to AU$120k with three to five years’ experience. A chief investment officer would command AU$250k-$300k+, with a bonus of 100% (but not over 100%).

Skills

• Simon Solomon, managing director of Plan For Life: “Accuracy, accuracy, accuracy. You need a fine mind that can think in several dimensions: not just laterally, but from above as well. You need to be able to put a complex range of things into perspective, and not too many people can do this.”

• Lee Rochester: ‘There’s no ‘type’ for it really. You need strong analytical and modelling skills and an understanding of the market. You need to have strong personal presentation ability and be very professional. These ‘soft’ skills get you, or lose you, the job in the first five minutes of an interview.

• Frank Villante, chief investment officer of Sydney-based Souls Funds Management, says an “unhealthy obsession” with numbers is one aspect of the job, but by no means the only one. “Almost equally, we look for people who have a sense of perspective and balance, who have a depth of experiences or a depth of interests. We take the view that it’s important that people who analyse and who try to understand people in business aren’t too monotone in their views of the world.”

Click here to find out about global trends in fund management.