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What do Investment Management Companies do?

By Justin Riche
Updated Feb 28, 2024
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Investment management companies usually have a range of clients for whom they make investment decisions. They will put their clients' money in virtually all kinds of assets, such as stocks, bonds, real estate and more. The investment management companies usually work within limits set by the clients in order to help them achieve their financial goals. The companies will employ various professionals who specialize in fields such as finance and management, who carefully analyze and select assets to include in clients' portfolios and who monitor their performance on a regular basis. Moreover, there are alternative investment management companies that mainly invest in venture capital firms, private equity firms and hedge funds for their clients.

These companies will have finance and management professionals who assess potential investments and decide to include those that promise profits. These investment management companies will likely have marketers whose main job is to find new clients for them. Also, there will be lawyers who ensure that the companies operate within the laws that control their industry. Moreover, there are specialized employees who stay on top of many back-office tasks such as keeping tabs on all sorts of transactions and ensuring that they are recorded properly.

Alternative investment management companies usually gather money from a diverse group of investors. Then they take this money and invest in various alternative investment classes such as venture capital firms, hedge funds and private equity firms. These firms will have their own investment styles, and the alternative investment management companies will choose to invest in those that promise success. Moreover, these firms operate in a similar manner to the management companies themselves.

Venture capital firms usually pool funds from numerous investors, including wealthy private individuals and institutions such as university endowments and pension funds. The firms make investment decisions on these clients' behalf. The capital that the venture firms have pooled together will mainly be used to finance start-up and high-growth companies. These ventures are very risky, but when they succeed, the investors who have their money managed by these firms will be rewarded handsomely.

Hedge funds are more or less partnerships, and there is the general partner who makes the daily investment decisions. The general partner is usually a firm run by what are known as hedge fund managers. Hedge funds usually are exclusive and mostly accept investors who are wealthy. These funds invest, more or less, in all asset classes, such as stocks, commodities and various financial products. Also, hedge funds are typically known for taking significant amounts of risk in their investment strategies.

Private equity firms mainly focus on investing in privately held companies that are gearing up to get listed on a stock exchange. They also buy publicly traded companies and take them private, restructure them, rebuild them to be profitable for the long-term and sell them at a profit. Furthermore, there are investment management companies that provide only consulting services and do not handle the actual portfolio management or the transactions of buying and selling assets for the clients. All of the management companies will work for fees that vary from company to company.

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