Mixture of science and art keeps the bulls running

PUBLISHED : Saturday, 27 May, 2006, 12:00am
UPDATED : Saturday, 27 May, 2006, 12:00am

FUND MANAGERS' jobs are often seen as one of the most glamorous career choices in the world, involving as they do a range of strategies and formulas. Perhaps slightly less glamorous, but equally important are the jobs of investment analysts who scrutinise and write reports that influence how millions of dollars are invested.

It is the fund manager who is responsible for choosing an investment strategy for a client. The job covers many areas such as managing pension, insurance, investment and other types of funds including trusts or private client portfolios.

Depending on the goals, fund managers may invest in a selection of assets ranging from equities, bonds and cash to derivatives and commodities. The investment strategies vary and depend on a fund manager's investment style and an investor's risk appetite.

According to John Lai, chief investment officer of Asia Strategic Investment Management, a wholly owned subsidiary of the Bank of East Asia Group, a fund manager's job can be stressful, challenging and exciting.

He said becoming a successful fund manager required common sense, a grasp of fundamentals and a strong character.

Mr Lai said managing a fund was also a combination of science and art.

The science is about sifting through analysts' reports to screen and justify information in a systematic way. The art lies in the way large volumes of information are interpreted and personal instinct used to develop strategies.

'There is always the competitive spirit to beat the market benchmarks and the other guys involved in the same business by making the right decisions based on facts and intuition,' Mr Lai said.

Fund managers must develop their own style of management using models they understand and feel comfortable with.

A fund manager's typical day involves meeting analysts, reading reports and carrying out due diligence on companies being considered as part of an investment portfolio. Increasingly, managers use the internet for conducting research. Depending on their investment strategy, managers will either buy or sell components in their investment portfolio.

Mr Lai said fund managers must have a thirst for learning and the ability to piece together fragments of knowledge. To make sense of markets, companies and the way that economies perform, it was important to learn about cultures, geopolitical situations and historic events.

'Fund managers must have the strength of character and a little bit of ego to stand by their decisions and strategies or they will end up being psychologically pushed by the markets,' Mr Lai said.

Sometimes, unrestrained egos can lead to wrong decisions as in the case of the collapse of US-based Long-Term Capital Management in 1993. Managed by investment guru John Meriwether, former vice-chairman of the US Federal Reserve David Mullins and two Nobel laureates - Robert Merton and Myron Scholes - the highly leveraged hedge fund produced up to 43 per cent return on equity. It had amassed an investment capital of US$7billion in its first two years of operation before it blew up, sending shivers through financial markets worldwide. The New York Federal Reserve helped prevent a disaster by getting a consortium of Wall Street firms to privately bail out the fund with a US$3.5billion cash infusion.

Often, fund managers work as analysts earlier in their careers. They may also have experience in a particular industry or have specialist investment knowledge. To support their investment skills they often study for a chartered financial analyst (CFA) qualification

Investment analysts, on the other hand, are employed primarily by brokerage houses and trusts. Their studies and evaluations cover areas such as takeover bids, private placements, mergers or acquisitions.

To become an investment analyst usually requires a degree in a relevant subject such as finance, maths, statistics, business studies or accountancy. Many analysts are recruited as graduate trainees in a financial company. Some investment analysts need in-depth knowledge of specialist sectors and it is useful to have experience in areas such as engineering or life sciences.

Chakara Sisowath, an MBA from the University of Chicago and a CFA who is a managing director with Comgest Far East, said his work was mainly office-based but travel was common while conducting research on companies in his portfolio.

'Fund managers need to be interested in the world around them and always be aware that they are responsible for investing other people's money. The decisions we take can make a huge difference to our clients' financial well-being,' Mr Sisowath said.

As emerging market economies continue to outpace developed countries in the global economic environment, Richard Titherington, JPMorgan Asset Management managing director - head of global emerging markets (GEM), said more investors were viewing GEM as an essential part of their portfolios.

But emerging markets were also characterised by diversity, volatility and immature institutions. This called for close monitoring and specialist country knowledge. He said the choice of equities selected for GEM funds relied on a strong global network of investment specialists.

'Corporate governance is a big issue in emerging markets and the quality of data that you get is often not quite the same quality as you get in developed markets.'