Asset Management Explained: Beginner Guide with Ben Hayward (CEO of TwentyFour)

I just wanted to get a sense of the landscape of asset management. Could you describe that? Is it by asset class, geography, whatever the split, as you, as someone in the industry, would describe it to someone thinking about it?

Well, I think asset management in general, if I go sort of top down, the business is, the industry is based around providing investment services to a really wide range of clients, anything from retail through to to sort of sovereign wealth funds and sort of governmental institutions encompassing intermediary wealth in all of those institutional pension funds, insurance companies along the way. And those products are by and large offered as pooled funds where you have a whole lot of clients in a single entity. But as I said before, we all, you know, you also will do sort of derivatives of that where it's a single client in a managed account. So there were a couple of different, there were loads of different wrappers that the assets sit within. The way of breaking down the industry initially is probably to look at passive versus active. So an investment in a passive fund you are making versus an underlying index. So, you know, you might invest in a fund, for example, that is against the FTSE 100, and it is aiming to not do anything other than give you the same return as the FTSE 100. And it will be focused on, for example, tracking error. So how close is it to that index? So That's a passive fund. It's not trying to do anything clever other than deliver what it says it's going to deliver. Whereas active management, the fund manager is actually looking to create a strategy where they add value in some way. Now that might be versus an index. Corporate bond funds be measured against the corporate bond fund index, for example, and the manager earns more because they should be outperforming that index on a regular basis. So they're active versus passive. And then underneath active, well, actually underneath both of those, you have probably asset classes are the easiest thing to go to next. So equities, fixed income, commodities, derivatives strategies, property, other types of assets, and they'll have sort of sub-asset classes. So fixed income, obviously government bonds, investment grade, high yield, secured and so on. Some of those might be sectoral. So you might have, for example, an emerging market corporate bond fund. So that is sort of geographical to a certain extent, but EM's probably more of a sector really than a geography, but it's sector because it's EM, it's sector because it is corporate bonds. Or you might have things that are thematic, so sustainable type funds. Or you might have funds that are trying to be a solution, trying to deliver an outcome. And as I said before, one of our main investment-grade funds is trying to deliver a set return over cash, but for a volatility target. So trying to keep, in that case, it's trying to keep volatility under 3%. So that's an outcome that it's trying to deliver, a solution that it's trying to deliver. So I think that kind of gives a bit of an overview of how the industry is kind of organized. You've obviously got a load of specialisms in there as well, hedge funds, private equity, private debt, all of those sorts of things. There's a very wide range of risk. Obviously you can go all the way from money market funds, instant access, just trying to beat cash by a little bit, all the way through to locking your money up for 8 years and hoping you get a really attractive return at the back end of it. It's a very, very broad— our space is only fixed income and really majoring in developed markets. Fixed income appeals to me because I'm quite a sort of cautionistic, cautious, pessimistic person. And what I'm sort of joking about there is that if you are an equity fund manager, you are looking for the upside, right? You're buying an equity in a, in a, a firm, you're buying a share in a firm, in a business that is perpetual. You have to see growth in the business for your investments to grow and pay you increased dividends. But really the upside is that the share price goes up and your investment's worth more. So you've gotta be positive. You've gotta believe in that growth. And you know, the very simplified flip side of that is in fixed income, you don't get that. That growth upside. The best outcome you can get as a bond fund manager or bond investor is you get your coupons along the way, so your interest payments, however frequently they may be, and then at maturity of the bond, you get your money back. The better words for what is the kind of the key part of fixed income is about analyzing and identifying the risks the cons and the pros in the investments. And so, you know, it isn't all about just trying to make sure bad things don't happen. It's also about trying to identify the positives of portfolios you can put together that provide really good outcomes for clients. But it does come down to, I'd say, to sort of key analytical skills. If you are if you are in a PM role, if you're in a portfolio management role. And you know what those skills really look like. You know, if you are looking at high yield, for example, you've got to understand how a relatively fast-growing corporate works. You know what their USPs are, what their balance sheet looks like, what their access to funding looks like, and what their chances for upgrade look like. And if that's part of their business plan, that's growth. Okay, I'd say the analytical skills for an ABS transaction are probably slightly different. There it's more quantitative, more structural, more in that kind of traditional analytical type role that those skills will perhaps come to the fore a little bit more. But I would say that when your listeners are thinking about jobs in fund management and in fixed income fund management, You know, there is a very wide range of roles within these businesses.