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Discretionary Fund Managers
What is a fund manager?
A fund manager is a professional who manages a pool of money, called a fund, on behalf of individual or institutional investors. Their job is to invest the money in various financial instruments, such as stocks, bonds, or commodities, with the goal of generating returns for the investors. Fund managers often work for asset management companies, banks, or other financial institutions.
Non-discretionary vs. Discretionary fund management
In the world of fund management, there are two main approaches: discretionary and non-discretionary.
A discretionary fund manager (DFM) is a type of fund manager who has the authority to make investment decisions on behalf of their clients without needing to consult them for every decision. They're typically hired by clients who don't have the time, knowledge, or inclination to manage their investments themselves. The clients entrust the DFM with the responsibility to choose investments and strategies that align with their financial goals, risk tolerance, and other preferences.
On the other hand, a non-discretionary fund manager provides investment advice and recommendations but requires the client's approval for every transaction. In this case, the client has more control over the investment decisions but also needs to be more involved in the process.
How do DFMs work?
When you hire a discretionary fund manager, you'll usually start by discussing your financial goals, risk tolerance, and investment preferences. The DFM will then create an investment strategy that aligns with your objectives and preferences. Once the strategy is set, the DFM will manage your portfolio, making investment decisions on your behalf.
For example, let's say you're a client who wants to invest for your retirement and you have a moderate risk tolerance. Your DFM might create a portfolio consisting of 60% stocks, 30% bonds, and 10% cash or other conservative investments. The DFM will then actively manage the portfolio, buying and selling investments as needed to optimize returns while managing risk.
Fees and performance
DFMs typically charge fees for their services, which can be based on a percentage of the assets they manage, a flat fee, or a combination of both. It's essential to understand the fee structure and ensure it aligns with your expectations and budget.
When evaluating a DFM's performance, it's crucial to consider their track record, investment approach, and how well they've been able to achieve the financial goals of their clients. Keep in mind that past performance is not a guarantee of future results, and there's always a degree of risk involved in investing.
In conclusion, a discretionary fund manager is a professional who actively manages your investments based on your financial goals and risk tolerance, without the need for your approval on every decision. Hiring a DFM can be a great option if you want a hands-off approach to investing, but it's essential to carefully consider their fees and performance before committing.
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