The main function of an investment firm is to investment money for clients. Therefore, fund managers play the most essential roles in the firm. A new investment firm usually starts with two or three fund managers and gradually additional functions and roles are added as the company grows.
In an investment firm, besides fund management, other key business functions include trading, marketing, compliance and trade settlement. As the firm grow larger, additional business function are added including fund accounting, customer service, IT and Administration.
An organisation structure of a typical small size investment firm
An organisation structure of a typical medium size investment firm
Let’s discuss each business functions in details:
Management Office
The CEO, President or Managing Director of an investment firm is usually the main partner / owner of an investment firm. Most of them are experienced fund manager themselves and they usually also act as Chief Investment Officer overseeing the front office or fund management department.
Some of the investment firm were founded by experienced bankers and they usually partner with an experienced fund manager to manage the investment while they bring in the money. In some cases, the owner will take up the role of Chief Investment Officer and hired an experienced banker or business manager to run the company.
Chief Investment Officer (CIO)
For smaller investment firm, this role is also taken by the CEO. In the case where the CEO is an experienced banker, this role will be given to someone with experienced in managing investment.
CIO usually oversees the management of the investment portfolios. He or she will also be responsible for formulating the firm’s investment strategy as well as managing the investment team.
Investment Team
Fund Managers / Investment Managers
Fund managers are responsible for managing the investment portfolio. They have to make decision on stock selection, asset allocation and sector allocation. For smaller setup, fund managers will perform other operational task such as portfolio implementation, cash management and trading. For most countries, fund managers are required to be licensed.
Analyst
Analysts are responsible for analyzing individual stock and bonds. They also perform industry analysis. Some analyst team may include an economist to analyze the economy. They will make recommendations to the Chief Investment Officer and fund managers. For some countries, analysts are required to be licensed.
Fund Management Support
Fund management support (aka Front Office Support) would assist the fund managers in portfolio implementations and cash management. Sometimes, they would place the orders with the approval of fund managers. In some organization, fund management support reports to the Chief Operating Officer.
Traders
The primary responsibility of traders is to execute orders from the fund management team. Since these traders are not members of the exchange, the traders would in turn place trading order with some primary brokers. The secondary responsibility for traders is to manage different brokers during trade execution. After the trade is done, it is the trader’s responsibility to ensure that all portfolios are allocated with the correct amount of stocks.
Some larger trading team includes foreign exchange traders and a team of support staff that would assist the principal traders in order execution.
Operations
The operations division usually includes Middle Office, Back Office, IT and Administration. In a larger organization, the operations division is usually managed by Chief Operating Officer.
Middle Office
Middle office usually includes risk management team and performance measurement team. However, the use of the term is not always the same. Some company consider fund management support as middle office whereas some company consider their trading support staff as middle office. In a smaller firm, risk management and performance analysis are usually perform by the same team.
Risk Management
Risk management team involves in computation of the investment portfolio’s investment risk against the market or benchmark. They focus on tracking error, VAR, information ratio and standard deviation.
Performance Measurement
Performance measurement team involves in computation of the investment portfolio’s returns and performance attribution.
Back office
Back office usually consists of trade settlement and fund accounting department, although smaller firm combined both function into a single department.
Trade Settlement
Trade settlement department involves in processing trades after trade have been made by the trading team. The usual task involves order matching, order confirmation, sending settlement instruction and transfer of money for trade settlement.
Fund Accounting
Fund accounting involves in taking care of subscription and redemption of the fund. The team also need to accrue any fees and expense including income receivables.
Information Technology
The IT department is responsible for the IT infrastructure of the firm. An IT department usually consist of the system group and the application group.
System Group
The system group is responsible for the network infrastructure, the servers and the desktop PC of the company. System group also provides user support for the desktop PC.
Application Group
The application group is responsible for developing, maintain and support the core business application of the company. For smaller investment firm which could not afford to develop the core business application in-house, the company will buy readymade investment application from the outside. Such company will have only a few application support staff.
Support Office / Administration
The support office or administration department is responsible for all other administrative matters necessary while conducting a business.
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