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HOW TO BECOME AN EQUITY FUND MANAGER

So you want to be a fund manager, sit on a pile of money, move it from here to there and from there to here. Wear a suit everyday to work, a silk tie and maybe have one of those heavy Swiss watches on your wrist. Sounds nice, right?

Well I have good news for you. Being an equity fund manager is the easiest job on the planet. You don’t even need a college degree, all you need is to read this article and you will be ready to manage millions and millions of other people’s money.

Ready?

Of course you are. Let’s get started.

The first thing you need to know about an equity fund is that they always have a benchmark. A benchmark is something the fund can compare its performance to. Whereas you compare yourself to the Jones family living down the road at number 47, an equity fund will compare itself to a suitable index.

For example, if you’re managing a pharmaceutical equity fund it will compare its performance to an index of other pharmaceutical stocks and if it’s an equity fund investing in American shares, then it might compare itself to the S&P 500. I think you get the picture. The idea of the benchmark is that you get a comparison of performance for your fund, with the goal being that your fund should perform better than the index.

Equity Fund Secret

Now here’s the little dirty secret about equity funds, they are in fact tracker funds (just more expensive). This means they copy and therefore track the index that they compare themselves to. If you go through the holdings of any standard equity fund you will be surprised to find how right I am about this. For you, the budding equity fund manager, this is good news. It actually means that you don’t have to spend any time with all that boring laborious stuff like researching the companies your fund invests in, all you need to do is find out what percentage each particular stock has in the index and buy those in to your fund.

Bonuses

Okay, so you’ve found the index on Google, you’ve worked out the weightings and bought them into your fund. But hang on! This is finance. What about bonuses? You want one too, right?

Ah, but here we come to a bit of problem. To get a bonus you need to beat the index and unfortunately for you about 80% of equity funds underperform the index, so the chances are you won’t be making a bonus. But not to worry, you’re on a basic monthly wage and normally that isn’t too bad. It should pay for an annual family visit to Disneyland Paris and a nice German family car.

You still want that bonus though don’t you?

Well okay, I’ll tell you what you can do to increase the chances of getting a bonus… without exerting too much time and effort. You have two options, both of which have the added plus that they will help to hide your fund’s true identity as a tracker fund.

First option is that if the company you work for has a brokerage with a research division all you need to do is buy a little extra of the equities that your company’s analysts have a “buy” rating for. No need to read the analysis, just check the recommendation. This’ll make your boss happy because you are using in house resources and it’ll make him really happy because the trades will be done through your own brokerage, who of course will charge your fund for the privilege, but not to worry it’s your clients who pay, and who cares, 99.9% of those people you’ll never have to meet face-to-face anyway. The problem with this strategy is that as analyst’s predictions go, they are about as reliable as a Trabant on a wet cold morning.

Your second option of getting a bonus is this. Ever heard of the Beta Coefficient? Don’t worry, it sounds scarier than it really is, it’s actually the equity fund manager’s best friend, that’s why the equity fund managers call it by its first name Beta.

Beta is Greek and we all know how good the Greeks are at managing money, so you can probably already guess where this strategy is likely to lead you.

But I digress.

In all its simplicity Beta measures an individual stock’s volatility in relation to the rest of the market. For example (in theory) a Beta of one means a stock is likely to move with the market, a Beta of 1.5 means that the stock is likely to be 50% more volatile than the market. So what do you do with this information? You go overweight on the high Beta stocks in your benchmark index. (Overweight is equity fund manager jargon for “buy more of this than there is in the index”)

Look, you need to be realistic. You already know it’s unlikely that you’ll beat the index on account of the costs that your fund incurs. Add to this the fact that you’re way too lazy to do any actual real work and the only reason you got this equity fund manager gig is because you read this blog post. This means your only chance of beating the index is if a) There is a bull market and b) You have a portfolio that has more risk than the average market.

Higher risk gives the chances of higher return, but you needn’t worry, after all, it’s not your money you’re taking the risks with is it?

Anyway, your tenure as an equity fund manager is destined to be short. Whereas the marketing material tells your investors that they should invest for the long term, you know, like 5 years minimum, what they fail to mention is that you my dear equity fund manager will only be in that job for about 18 months, which is the average tenure of an equity analyst in London. How do I know it’s 18 months? My mate Phil told me so at the pub over a pint (no joke, true story) and my mate Phil is a lot more reliable than Wikipedia, especially after he’s poured a Windhoek beer or two down his gullet.

So there you have it. It really is as simple a job as that. Brush up your CV, get on Linkedin and start applying. A career as a job hopping equity fund manager awaits you!

(This article has been amended to correctly state Phil’s favourite choice of beer. The earlier version incorrectly stated an inferior product)

Wealth Management Parody from SCM on Vimeo.

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17 Comments
VASSILIS M.
10/23/2014 06:38:49
“…and we all know how good the Greeks are at managing money, so you can probably already guess where this strategy is likely to lead you…”

Appreciate the joke, however, Greeks are starving and not because of their money managing skills. No problem. Let’s have fun criticizing a small country with 60% youth unemployment where a handful of people commit suicide on a daily basis. Yet, we must admit that fellow U.S. and U.K. “sophisticated” ivy-league-graduates herd of gamblers, sorry, money managers and policy makers have overwhelmingly convinced on how well they deal with investment opportunities and public issues. I understand that, more or less, this is exactly the point of your article, however, the statement about Greeks was not very appropriate.

God bless you.

Vassilis M.

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BANKER’S UMBRELLALINK
10/23/2014 07:23:05
“…the statement about Greeks was not very appropriate.”

Thanks for your comment, however, the statement in this blog post about Greece was appropriate.

The Greek economy is an almighty mess and the Greeks also have to bear responsibility for that mess and accept criticism of the mess they were part of creating.

That doesn’t mean that the mess is all the fault of the Greeks, it certainly isn’t, plenty of blame to go around. (Did I mention the word “mess” enough times?) What is disappointing in the whole Greek debacle is the inability of anyone to take an responsibility for the utter disaster that was caused.

Criticism of Greece is justified, the criticism in this blog post does not make fun of the human tragedy going on in Greece. The fact that someone would choose to read it as such, that, in my opinion, is not appropriate.

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BLACKWELLIAN
10/23/2014 08:24:25
For individual Greeks, the situation has been and will continue to be out of their control. Did they ask Germany to repress income growth so that it could export excess savings, which in turn requires peripheral countries to run current account deficits (and finance them)? No – not really. Did they hire a bent and incompetent government incapable of dealing with the situation? I guess they kind of did.

All that aside, I still thought the comment was witty and not in bad taste.

T.G.G. OM
10/24/2014 02:56:16
@Blackwellian
The only Greeks not responsible are those that were not allowed to vote before the debt crisis struck.
The rest of them got what they voted for… That is the nice thing about democracy. But it is easier to blame the Germans (or the ECB, or the IMF or…) than start taking responsibilty.

VASSILIS M.
10/24/2014 05:39:12
@T.G.G. OM

Very easy to talk about responsibility when not related to or not affected by the matter under discussion. To be honest, I have used your claim (about voters) in arguments with fellow Greeks, however, I admit that I knew it is not valid and I just did it because I lost my composure.

Apparently, voters’ decisions were (and still are) based on conditioning information fabricated by the media and cooked macro figures reflecting a situation which has nothing to do with reality and of course not motivated by the people who now suffer. Before the 2007-2009 crisis, Greek debt was not much different than Italy’s or a handful of other developed countries. However, when Georgios Papandreou became Prime Minister, somehow, it became “urgent” for Greece to ask for troika’s support.

You should know by the way that only a tiny part of the voters you refer to benefited from the situation that eventually led to the Greek crisis. Furthermore, the outrageous claim (made mostly by people that have never even been in Greece – and obviously not you) that Greeks are lazy has really nothing to do with reality. The majority of people involved in the private sector (and some in the public sector) used to work and continue to work long-hours without even getting paid “overtime”.

In sum, my point is that we should put the blame on the really responsible and not on those that it is convenient or fun. I would also like to apologize to the author of this excellent post for making an unrelated comment to the real point of his article with which I totally agree. Besides, the inappropriate comment against Greeks :-), he best describes how easily a herd of gamblers and data miners who never meet face-to-face with clients and motivated only by the prospect of making short-term money join and ruin the industry. Speaking about responsibilities, we should put the blame on the guys who have the real power in this industry (but do not know so), the not-to-so-sexy-as-quants RMs who trust their client’s money to the 95% who consistently underperform the benchmark. Being both a quant and an RM myself, I still struggle to find the right balance between what I believe we can achieve (alpha) and what is really beneficial for our clients.

T.G.G. OM
10/24/2014 06:04:14
@Vassilis M
Re: Responsibility. No. I do not/can not share your opinion. Either voters are responsible or we can abolish this hole democracy bullsht… That most people are gullible and easily led, that logic thinking is not homo sapiens greatest strength and so forth may be true – but it is no excuse… And – o.k. – I am not Greek, but I have to take the blame for enough budget disasters in my home country (google e.g. Hypo Alpe Adria). And yes – Greece may have been (unfairly) singled out – but bad governance laid the foundation for that. If Greece would have had e.g. norwegian budget numbers (g*) it would not have been possible to single them out…

BANKER’S UMBRELLALINK
10/24/2014 09:22:07
Vassilis.

You’re excellent comments add up to a whole blog post.

Feel free to keep commenting here, but I don’t believe your interesting points regarding the situation in Greece will be read as widely as they deserve in this comments section.

Why don’t you write a guest blog post for this site on the subject? You can do it anonymously or with your own name and with your own opinion. I don’t need to agree or disagree with it. I’ll publish it. Main thing is your point of view comes across. As a blog post it’ll reach a wider audience.

If that’s something you’re interested in then drop me an email at [email protected] or fill in the contact request on this site.

BANKER’S PARACHUTE
10/23/2014 13:19:07
The Bronx accent of Larry Swedroe is supremely vivid in this piece.

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SIR LARRY WILDMAN
10/23/2014 18:58:04
If it hasn’t been linked already this needs to go on the efinancial careers website. The Greece thing was tounge and cheek but also very true. Also you need to stop posting blogs on Thursdays which is my whiskey night my replies are not of Hemingways quality when drunk.

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BANKER’S UMBRELLALINK
10/24/2014 04:29:55
Yes it was mentioned in the financial careers website and in FT and in Bloomberg. Clearly a very popular subject. Surpassed my expectations.

We really need to have that get together over a good whisky or two.

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TURTKETRADER
10/24/2014 00:07:16
Can we have the author’s audited track record for the past few years please?

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BANKER’S UMBRELLALINK
10/24/2014 04:28:09
Who is “we”?

And no you can’t, because the author isn’t an equity fund manager.

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ACTONLINK
10/24/2014 02:15:06
My vote for the worst managed fund goes to Australian Unity’s Property Securities Fund.
People who invested with Australian Unity Property Securities Fund in 2006 bought in at $2.00-$3.00 per unit.
However, these units were valued at just $0.04 each by 31 March 2009.
If you invested $50,000 at $2.50 per unit in 2006, your investment was worth just $800 in 2009, a 98% decline in value in just three years.
A 2006 investment is still worth only 5% of the original sum and unit prices have flat-lined.
For a professional investment company to reduce funds entrusted to it by 95% in just three years is an accomplishment worthy of a case study in incompetent investment management, flawed decision making and a negligent failure to protect investor’s funds.
Australian Unity continues to charge fees to remaining PSF investors despite its history of incompetent funds management.
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BANKER’S UMBRELLALINK
10/24/2014 09:14:44
That is pretty appalling results. You’re right.

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JONATHAN HEADLAND
10/25/2014 11:36:38
The article’s title is “How to become an equity-fund manager”, but the article’s content tells us instead how to be an equity-fund manager.

The former would be of more practical use, although I appreciate that the article is supposed to be a joke. We understand that’s it’s not hard to go through the motions of “managing an equity fund”, but it seems to be a lot less easy to grab one of these lucrative jobs.

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BANKER’S UMBRELLALINK
10/26/2014 02:38:26
Do you feel a bit cheated? There, there. I’ll give you a man hug.

On a more serious note. A joke and the use of humour to make a serious point are two very different things.

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CAROLINE R.
10/27/2014 01:23:26
Thanks for the good laugh, very funny article and a lot of true things! For the commenters who do not get the jokes and humor, I suggest you just stay with traditional financial newspapers and not blogs..

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