Talk:Investment management
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[edit] Suggestions for improvement
simonthebold:
If you feel the article could be improved please leave your comments here:
- Simon- I'm so sorry... I'm new to this, and I just edited & added some content to the page without looking at the discussion first. I hope it doesn't seem disrespectful; it was just a matter of ignorance.
- --Bobsbrotherfutureman 22:52, 28 November 2006 (UTC)------------
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- Hey Bob, its not my page, its our page. I had a quick look, your edits seem good. simonthebold 13:37, 29 November 2006 (UTC)
Hi Simon - curious as to why you include derivatives as an asset class, give that their price movements reflect changes in the underlying asset. Can you point me to any research that seeks to show that derivatives are a true asset class. if not, maybe you could be a little more rigorous with respect to your inclusion of them. Otherwise, a great introductory article Alphaseiqer 22:06, 10 December 2006 (UTC)alphaseiqer
[edit] Asset management companies bankruptcy
When they file for bankruptcy the asset of their clients and their own assets(that the bond holders and shareholders will get) are two separate things correct? The clients will always get their assets back(assuming they didn't cook the books to hide losses) correct?
With regret this depends on the investment vehicle (the legal structure under which you invest). For example Exchange Traded Funds (ETF) are normally accessed (invested in) by way of ordinary equity. (You buy shares in the investment company who then, in turn, invest the proceeds, less many intermediate expenses, in other businesses). When an ETF fails you lose your $. The same applies to hedge funds.
Why do they do this? the basic reason is that they gear your investment (borrow more $) and those creditors have prior claim over all the assets. Why do they gear? because if you gear say 67% (borrow $2 for every $1 invested) then you can lose (or gain)twice as fast as you otherwise would. However this gain is reduced by the cost of borrowing.
Thus $1 invested for one year geared 67% with an interest rate of 5%, an investment return of 10%, an an initial brokerage of 1% and a annual expense of 2% will return 15.76%, (a direct investment with no gearing would yield 8.9%). However, if the investment return was 2% the geared investment would show a loss of 8%.
Most mutual funds do not gear (a major exception being real estate funds)and for most other financial intermediaries (life insurance companies and brokers) the client assets are (should be) held in a seperate trust account and are not available to the ordinary creditors of the firm but remain the property of the investors (there are some notable exceptions to this, mainly concerning investors who are also active participants in the investment management firm (and there are extensive variations by jurisdiction - notably in jurisdictions that do not have trust law).
It is usually not a pleasant experience to own assets that are being managed by a company in bankruptcy.
[edit] Citation needed?!
"evidence suggests that size of an investment firm correlates inversely with fund performance, i.e., the smaller the firm the better the chance of good performance. [citation needed]"
This is getting to the stage of being absolute ridiculous. One cannot make such outlandish comments/propositions without any sort of evidence to back it up. Otherwise, guys, anything goes. Let me demonstrate:
(1) Michael Jackson was abducted by Aliens [citation needed]. (2) Elvis Presley is still alive [citation needed].
I think you get the picture. I'm all for common general knowledge being out there without citations: e.g. "Elvis was known as the 'king' of rock" etc but to make such comments as above is absolutely ridiculous without providing the actual citation.
I'm for removing till someone can actually find the source for the top most proposition (i.e. 'evidence suggests...' --ToyotaPanasonic 12:51, 16 January 2007 (UTC)
- Investments - (Frank K Reilly, Drydon 2nd edition page 569) quotes the Sharpe study (William F Sharpe Journal of business 39) "...there was only a slight relationship between size and performance" and "Good performance was associated with low expense ratios". The best quote on performance comes from Michael C Jensen "there is very little evidence that any individual fund was able to do significantly better than that which we expected from mere random chance".
- So if we assume that small firms are in a start-up phase then they will tend to have lower expense ratios (to attract clients) and thus tend to outperform. However there are the small firms that were large firms but have managed to lose all their client's assets.
++++++++++++
The other citation requested - "A graduate degree or Chartered Financial Analyst certification may be required to move up in the ranks of investment management." For passive managers (e.g - in most cases - Vanguard) this is true as constant portfolio balancing requires a specialised skill, however, for active (alpha) managers it is (risk weighted) investment performance that determines career success.
