Careers & Differences between AM & PE/HF
I recently realized that I actually don't know the differences between AM and PE/HF. My understanding is that Asset Managers manage money for their clients by deploying that capital in the market to earn a return. They will invest in public equities, FI, private capital (PE/VC/Private Credit), commodities, etc.
These clients are usually high net worth individuals or institutions? If yes, then HNW or Institutions also have the option to invest in the vehicles listed above by themselves (if they have the resources) or through Fund of Funds. So what is the difference between say a Fund of Fund or a Pension Fund / LP and an Asset Manager? Is it just investing through different types of vehicles? What am I missing here?
Also, so far my work has been in the PE/VC investment space (direct and LP investing). I am exploring career options (if the work is different) in AM.
What kind of careers would be available/recommend to someone with ~4-5 years of experience post-undergrad that wants to do something other than doing diligence and writing memos all day? What is the comp like?
PE / HF are a subset of AM (which includes them, Mutual Funds, individual securities, RE, Alts, etc.) It's not about the difference between them as they are part of overall AM.
This is why Asset Management is so much fun.... right?
You already work in asset management. Private equity, HF, etc. are all asset managers. The difference is that in most cases they are, effectively, specialized firms that work on a specific asset class, strategy set, etc. You may have your own distribution - but I'd suspect in most cases you are being brought money by the truckload by fund of funds, larger asset owners who are of size and can directly invest, maybe consultants, etc. As you get to 'larger' firms in asset management - they not only invest the assets in strategies they run, but they also advise on whole portfolios (or part of a portfolio) for clients.. among a million other things. I'm mostly familiar with institutional space, for what it's worth.
I'll give an example of 'generally' how this can work using an institutional investor as the example. Let's say I'm a $300mm endowment (just for fun). I often have an 'investment consultant' this is someone who basically helps the board, investment team that they may have internally (a lean one, that is) - they help me with my asset allocation decisions, research for the portfolio, investment manager selection/due diligence, searches.. and depending on the setup, maybe even the execution of the portfolio. Within the portfolio - you have all the 'investment managers' - that's what you are. You allocate to a variety of strategies, funds, etc. which could include your private equity fund, etc. That's one source of money for your private equity fund - you have a consultant, or even a discretionary consultant, who manages the funds for the asset owner. That fund could also allocate money to someone like vanguard - in a purely passive fund that they management. There will be other names you'll know in that portfolio - Blackrock, Guggenheim, Doubleline, etc. All of which have strategies that the endowment, with their consultant, choose to allocate to. In this example - if you work at the consultant - you are effectively a manager of managers, the asset owner has outsourced much of that to your firm. You aren't 'investing the money' in so much as you are 'managing their assets, and their investment managers'.
Obviously - the larger the asset owner, the more they do this themselves with more, or less, help from the consultant. You aren't missing anything - I think that what you end up with is a distinction that is basically - do i want to invest assets directly in a strategy, or am i distributing/selling/providing service on strategies that I manage. Those are generally the roles in AM. As you step further back - you could be at a huge pension fund where you are literally managing assets, allocating assets to other managers, etc.
I'll note the above can be somewhat seen as a 'niche' example - but I think it gets to the overall point of AM. As you think about roles, the big question is really where you want to be in relation to the literal investment of the money. What do you actually want to do? Do you want to sell? Do you want to be more of a client portfolio manager - in some ways, similar to what i mentioned above? Do you want to be a portfolio manager for a strategy at a firm?
AM is mostly (not always) long-only investing into a variety of traditional asset classes in (mostly) the public markets (equities, fixed income, multi-asset etc). The key distinction between an AM firm and an HF is the client make-up, AM firms typically have a very large retail contingent (everyday savers / mass affluent) in their client base vs HFs that are strictly institutional or qualified investors (high net worth). Fee structure is typically just a management fee and transaction fees.
HFs are kind of like the "cousin" of AM. They both fundamentally do the same thing: invest client capital in (mostly) the public markets. HFs however pursue riskier or higher conviction investment mandates and are free to use leverage or a variety of derivatives to implement their strategies. There are two forms of hedge funds: multi-manager funds and single manager funds. The former is sort of like a massive conglomerate with multiple "business units" lead by individual PMs and the other is more like a small Doctor's office with only one (or a small partnership of) decision maker(s)/CIO. Fees are typically a combo of ongoing management fees and performance incentive fees.
PE is again, similar to both AM / HFs since at the end of the day they are all investment firms. However PE firms are investors in the private markets. They buy and sell private companies or take public companies private. Unlike AM / HFs, PE funds are time-limited (typically 10 years) and close-ended there are no "drawdown" windows like you have in the more public markets oriented AM / HF world.
Now one step above these firms are, again, another type of investment firm termed "Asset Owners". These are the institutions that act as "stewards of capital" on behalf of a country, a charity, an UHNW family / individual, an insurance company, a group of retirement savers so on and so forth. They are the institutions that supply capital to the above three firms to be managed on their behalf. However, sophisticated Asset Owners will very often manage their own investment strategies in-house to circumvent paying fees to external managers. That said, even the most sophisticated Asset Owners like the Canadian pension funds, Singaporean / Middle Eastern sovereign wealth funds etc still actively outsource investment activities to external managers.
Fund-of-funds are sort of in-between investment firms and asset owners. They pretty much act as a tool for asset owners, who otherwise wouldn't have been able to allocate to particular funds directly, to have access to a group of well-performing funds. Essentially aggregating capital from multiple asset owners in order to allocate large enough cheques.
I'm going to try to simplify what Addinator said a bit (none of it is wrong)
I work for an asset management firm. I'll sell you one of my strategies in a mutual fund or ETF at a fixed price. If you're big enough, I'll write you a RFP with a bulk discount and customize it to your desires. Maybe you don't want firearms, I'll take Remington out. That's fine if the price is right.
The other item that this forum does a bad job of breaking out is WM. Your financial advisor will talk to you about how much investment risk you're comfortable with, how much insurance you need, etc. That's fine, but WM not AM.
Much appreciated - I have a habit of going off on tangents, probably because I have to be relatively concise in the real world (not that this isn't necessarily). That or I just need a vacation.
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