What Is a Fund Manager? Responsibilities and Career Path

What Is a Fund Manager?

A fund manager is responsible for implementing a fund's investing strategy and managing its portfolio trading activities. The fund can be managed by one person, by two people as co-managers, or by a team of three or more people.

Fund managers are paid a fee for their work, a percentage of the fund's average assets under management (AUM). They can be found working in fund management with mutual funds, pension funds, trust funds, and hedge funds.

The Role of Fund Managers

The main benefit of investing in a fund is entrusting the investment management decisions to the professionals. That's why fund managers play an important role in the investment and financial world. They provide investors with peace of mind, knowing that their money is in the hands of an expert.

A fund's performance may have a lot to do with market forces but the manager's skills are also a contributing factor. A highly trained manager can lead their fund to beat its competitors and their benchmark indexes. This kind of fund manager is known as an active or alpha manager. Those who take a backseat approach are referred to as passive fund managers.

Fund managers generally oversee mutual funds or pensions and manage their direction. They're also responsible for managing a team of investment analysts. A fund manager must have great business, math, and people skills.

The fund manager's main duties include meeting with their team as well as existing and potential clients. The fund manager is responsible for the success of the fund so they must also research companies and study the financial industry and the economy. Keeping up to date on trends in the industry helps the fund manager make key decisions that are consistent with the fund's goals.

Responsibilities of Fund Managers

Fund managers primarily research and determine the best stocks, bonds, or other securities to fit the strategy of the fund as outlined in the prospectus. They then buy and sell them.

The fund manager typically has a support staff of analysts and traders who perform some of these activities at larger funds. Multiple managers at some investment companies oversee client money and each may be responsible for a portion or make decisions via committee.

Some other responsibilities of the fund manager include preparing reports on how well the fund is performing for clients, developing reports for potential clients to know the risks and objectives of the fund, and identifying clients and companies who may make good fits as clients.

The Path to Fund Management

Individuals must have a high level of educational and professional licenses and credentials and appropriate investment managerial experience to qualify for a position in fund management. This includes mutual funds, pension funds, trust funds, or hedge funds. Investors should look for long-term, consistent fund performance with a fund manager whose tenure with the fund matches its performance period.

Most fund managers pursue a Chartered Financial Analyst (CFA) designation as a first step in becoming the head stock-picker for a portfolio. CFA candidates undergo rigorous coursework in investment analysis and portfolio management.

These analysts typically assist portfolio managers with individual research on investment ideas and subsequent buy, sell, or hold recommendations. Familiarity with fund operations and management style aids the analyst in a career path after several years working for the fund. Successful CFAs build a quality case for an internal promotion to manager if the opportunity arises.

Active vs. Passive Managers

Active fund managers try to outperform their peers and the benchmark indexes. Managers who engage in active fund management study trends in the market, analyze economic data, and stay current on company news.

They buy and sell securities including stocks, bonds, and other assets based on this research so they can rake in greater returns. These fund managers generally charge higher fees because they take a more proactive role in their funds by constantly changing their holdings. Many mutual funds are actively managed. This is why their fees are generally high.

Passive fund managers trade securities that are held in a benchmark index. This kind of fund manager applies the same weighting in their portfolio as the underlying index. They normally try to mirror its returns rather than attempt to outperform the index. Many exchange-traded funds (ETFs) and index mutual funds are passively managed. Fees for these investments are generally much lower because there isn't a lot of expertise involved on the part of the fund manager.

Notable Mutual Fund Managers

One of the most iconic fund managers in history piloted Fidelity Investments' Magellan Fund. Peter Lynch managed the company's notable equity portfolio from 1977 to 1990. Lynch was a proponent of selecting stocks in industries with which he was most comfortable. Magellan's chief amassed remarkable average returns of 29% per year throughout his tenure, growing AUM from $20 million to $14 billion.

One of the longest-tenured fund managers is Albert "Ab" Nicholas. Founder of the Nicholas Company, the seasoned portfolio manager ran the five-star Morningstar Nicholas Fund beginning on July 14, 1969, besting the S&P 500 Index each year from 2008 through 2014.

A Hedge Fund Icon

Ken Griffin's Citadel Global Equities hedge fund returned almost 6% after fees in 2018.

Griffin had a net worth of $37 billion as of 2024. Griffin leaped right into the world of private equity management buying and selling stocks from his Harvard dormitory in the 1980s, launching Citadel with $4 million in 1990.

The Bottom Line

A fund’s performance is often largely dependent on market activity but a qualified fund manager will handle the effect of that activity to shield and benefit their clients. They typically oversee pensions and mutual funds. Investors should fully review the investment style of fund managers before they consider investing with them.