Asset Management Guide

Eisan Hashmi
WHO WE ARE

We are Walter Scott. We were established in 1983 to manage bespoke equity

portfolios for institutional clients around the world. We undertake in-depth
research to find growth companies that we believe will best deliver sustainable
wealth generation over the long term.

Our team analyses and debates every investment idea with discipline and rigour.
We believe that a team approach ensures better investment decisions.

Key to our success is the consistent implementation of our tried-and-tested

investment philosophy by an experienced, motivated and collaborative team.
Table of Contents

Introduction ............................................................................................ 1
What is Asset Management? .................................................................. 2
Careers in Asset Management ................................................................ 3
A deeper insight into Asset Management ............................................... 5
What is an Index? .................................................................................... 6
What is ESG investing .............................................................................. 7
Other key terminology ............................................................................ 8
Further reading and individual work ..................................................... 10
Introduction

This guide was created with the intention of introducing the asset
management industry to those unsure of what career path to pursue. The
guide hopes to provide an essential base level of information to help at
interviews for intern and graduate positions. Upon finishing the guide, further
reading and building of market knowledge would be expected by prospective
employers.

I would like to express my gratitude to Walter Scott for being a part of the
creation of this guide and in particular to Sasha Thompson and Richard Barry
for aiding me in this endeavour.

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What is Asset Management?

Asset management (AM) is a particular service that is offered within a wider

division known as investment management – which is provided for clients
interested in achieving investment goals and financial well-being. AM is a role
where one invests large sums of money on behalf of clients into the financial
markets. The client’s objective is to gain a return over a particular period.
These clients can range from wealthy individuals to large institutions such as
(1) pension funds, (2) insurance companies and 3) sovereign wealth funds.
(1) Pension funds – companies such as Samsung have thousands of workers
across the globe. When each employee receives a monthly wage, it is common
for a small portion to be added into a pension scheme. As the pot of savings
grows monthly, variables such as inflation can erode the real value of the
money. Therefore, in order to combat such variables, money is invested into
the financial markets by asset managers – allowing them to receive a positive
return over the years to come.
(2) Insurance companies possess vast amounts of consistent income, relying on
asset managers to invest their income in the financial markets to ensure it
grows. This will allow their business to stay functionable during incidents
where large numbers of clients are in need of a replacement product, striking
up a large bill for the business.
(3) Sovereign wealth funds are owned by the state or government, who hire
asset managers to work for them full time. From investing their wealth and
allowing a return, it permits them to further invest in areas such as education
and health care.
Within the financial markets industry, there are two main categories that
incorporate divisions such as AM and trading. The first category is known as
the sell side. This is where investment or commercial banks sell financial
products such as securities to the buy side – the second main category. On the
buy side, firms range from private equity firms to AM firms with often vast
quantities of wealth, enabling them to purchase, on behalf of their clients,
products offered from the sell side.

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Careers in Asset Management

A career in AM can be offered in a number of different institutions from

investment banks such as Goldman Sachs and JP Morgan, to asset manager
firms such as BlackRock and Blackstone. More specialised houses such as
Walter Scott & Partners offer careers solely working with equities. The AM
division is known as a front office role in investment banks – meaning this
service generates a high proportion of a bank’s income and is consequently
often a competitive area in which to secure a job.
The application process
Psychometric testing is frequently used by a large majority of firms in the
industry but is less of a determining factor when compared to other firms such
as the Big Four accounting firms. Instead, greater emphasis is placed upon the
applicant’s CV and cover letter, depending on the quality of three broad key
factors: education, work experience and extra-curricular activity.
An applicant’s progression to interview stage or the final stage is typically
assessed with a version of this framework in mind. Applicants should also be
prepared to convincingly explain why asset management interests them, be
able to talk about contemporary events that are affecting financial markets,
and to be prepared to describe and discuss companies in which they are
interested.
Types of role
Roles in AM usually require one to make the decision upon whether they take
up, (1) a client role or (2) a research/investment role. Both roles mutually
complement each other to maximise client returns.
(1) As mentioned in the first paragraph, AM revolves around a client’s needs
and future objectives, which is done through assessing their current situation.
This requires excellent communication skills when engaging with clients to
ensure their return is along the line of what is expected. Within the client role
there are typically three responsibilities, sometimes divided into individual
positions: (a) client management, (b) sales and (c) marketing.
(a) The purpose of client management is to ensure existing clients are up to
date with the firm’s investment philosophy, the latest portfolio purchases and
sales, and to provide any relevant market commentary.

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(b) The sales aspect of the role is necessary to add further client relationships
to the firm. They often focus on pension funds, endowments, foundations,
high-net-worth individuals/family offices, insurance companies and sovereign
wealth funds as mentioned above.
(c) The marketing nature of the client role ensures that the department as a
whole looks impressive through measures such as effective branding &
advertising. An extremely important aspect of this team is to research
strategies to enhance the client experience. This ensures that new strategies
are being developed and old strategies are revamped – this gives each
company an edge against their competitors allowing to show their personal
flair.
(2) Research/Investment roles are responsible for building client portfolios
across a wide array of asset classes, including equities, bonds, and alternative
assets (real estate, private equity, commodities etc.), sometimes in multi-asset
solutions – asset classes are explained on page 5. The Multi-Asset Solutions
teams are responsible for creating investment solutions according to a client’s
request, utilising a complex process of capital markets, asset distribution,
portfolio building and risk management, all working together to give the client
the best return.
Research/investment roles require a different set of competencies – the ability
to synthesise and weight the importance of quantitative and qualitative
information, investigative skills, meticulousness, intellectual honesty, and
creativity. Initial roles are typically in an analyst position – the researching and
pitching of ideas to be added to portfolios – often progressing to the position
of investment manager – those who ultimately decide which ideas make the
cut.

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A deeper insight into Asset Management

Portfolios are a grouping of asset classes that are managed by portfolio

managers, through the request of a client. Asset classes are the financial
instruments chosen by a manager, consisting of a vast array of tradeable
securities.
Historically, the two main asset classes are bonds and equities. Bonds are a
fixed income security which are categorised as government or corporate
bonds. The return on this investment consists of scheduled fixed interest
payments and the selling of the principal once the rate of value increases to
the client’s desire. Bonds are typically considered to possess the least amount
of risk in comparison with other asset classes, primarily due to a fairly stable
market and the fixed nature of payments, often attracting those closer to
retirement.
Equities, also known as stocks or shares, are securities that grant the holder an
ownership stake in a company. A return on the investment is made from
dividends and selling at a higher price when the value has risen. Equities are
seen as the most volatile asset class due to the stock market’s nature.
However, the return on investment is historically larger in comparison to any
other asset class, in turn attracting a younger pool of investors who have
longer-term investment horizons.
Since the rise of the digital age, new asset classes which have been categorised
as alternatives are rising in prominence throughout the world. Commodities
are a commonly invested alternative asset class, ranging widely from securities
such as gold to sugar and crude oil. This asset class can provide benefits such
as a strong return on investment and allows companies to hedge against
inflation. However, it can bring risks such as great volatility with market value
even when using strategies such as hedging and diversification.

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What is an Index?

An index is a method that replicates the performance of a group of assets using

a standardised metric and methodology. Investors commonly utilise an index
as a benchmark to compare an investment’s performance against the average.
The most common indices used are the Standard & Poor's 500 (S&P 500 – the
500 largest companies in the US), Dow Jones Industrial Average (DJIA) and the
NASDAQ Composite. However, these indices only depict the market in the US.
The UK has the FTSE which can range from 100 (the largest listed companies)
to the All-Share (all public limited companies).
Passively managed funds simply replicate a market index and provide an
investor with the average return. Actively managed funds charge a higher fee
with the aim of outperforming the average.

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What is ESG investing

ESG investing blends environmental, social and governance factors into the
traditional investment process. Investors can look at a number of factors that
are not always present on a standard financial analysis such as how companies
manage carbon footprint or diversity within corporate boards. ESG investing
revolves around the notion that if companies follow sound ethical principles,
they will perform better financially.
ESG investing has been on the rise throughout the asset management industry
due to records proving its positive effect for a higher return on investments as
well as ensuring the investment has benefited the world in various methods.
Numerous organisations over the world such as the CFA Institute has provided
vast evidence to highlight ESG investing’s importance and positive effect on
investment portfolios.

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Other key terminology

Below is a list of some defined key terminologies that are utilised in the world
of Asset Management.
(1) Portfolio risk. in an ideal world, eliminating all possibilities of risk would be
possible. However, this is obviously not feasible. Ensuring that risk is as
minimised as possible is therefore a key strategy, in balance with the potential
for reward. Portfolio risk occurs when a combination of assets or units within
the investment does not meet the objective of the client. In order to reduce
portfolio risk, managers diversify their holdings across different investments
and assets classes, while striving to not detrimentally affect the overall return
for the client.
(2) Benchmarks. Benchmarks are measurements used in order to analyse the
risk, allocation and return of portfolios, and make modification to suit a client’s
risk profile in comparison to the market average.
(3) Hedging. Hedging is used to reduce market risk as the financial markets can
be extremely volatile and difficult to predict. Within stock portfolios there are
multiple risks that can be hedged with different methods. If a security
possesses an outsized risk, a common method to tackle this is to reduce or
close the position as opposed to hedging the security.
(4) Long-Put. A commonly used approach in hedging is referred to as a Long-
Put position. This is an option contract which allows the purchaser to sell or
buy the asset when it reaches a particular price on the market.
(5) Primary market V Secondary Market. The primary market is where new
issued stocks are offered to investors, on the other hand the secondary market
more commonly known as the stock market is where investors sell the
securities purchased within the primary market.
(6) IPO. IPO (initial public offering) is the process where a private corporation
chooses to offer shares to the public in a new stock issuance, allowing them to
raise capital through investors purchasing shares via the primary market. The
private corporation must go through several vigorous conditions by financial
regulators and stock exchanges before the process of an IPO can initiate.
(7) Bull/Bear markets. Bull markets refer to when the market and economy are
thriving, and prices of stock shares are rising. Whereas Bear markets refer to

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when the market and economy are depleting, and prices of stock shares are
plummeting. Bullish investors will invest in stock believing that the price will
rise, bearish investors will do the opposite when believing that the price of a
stock will decrease.
(8) Diversification. Diversification is a strategy used by asset managers to
decrease the chance of risk within a portfolio. This can range from micro and
macro factors such as introducing multiple asset classes or diversifying within a
specific asset class in a portfolio.

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Further reading and individual work

This guide has hoped to provide valuable insights of the asset management
industry. For those interested in pursuing a career in asset management it
would be extremely beneficial to gain an in-depth outlook on 4 key procedures
of investing.
(1) Read and understand the differences in financial statements such as
balance sheets and cash flow statements, which are used to determine the
growth of a company in the future. (2) Be familiar on where to obtain quality
economic data and news on current events affecting the financial markets such
as Bloomberg and The Economist. (3) Analyse a small selection of companies
that interests you and understand what the return on investment could like,
from either dividend returns or selling the shares once the prices has risen. (4)
Reading investment letters from well-known investors such as Warren Buffet
would be ideal to gain critical insight on how their thought process works, and
how they perceive certain asset classes or companies.

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