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The role of a financial manager is to earn profits for investors that are equal or better than any other investment in the broader financial markets. A financial manager combines the assets of multiple different investors into a single investment vehicle, or fund. Those funds are then invested in the financial markets according to a strategy, and investors pay hefty fees for anticipated profits. It is the role of the financial manager to deliver on those expectations or to have very good reasons for not doing so.
Investors select a financial manager because the style, historical performance, and potential fits a particular need. A mutual fund is one type of investment vehicle, and the financial manager overseeing it must invest so that profits either meet or exceed the broader financial markets. Hedge funds similarly pool the assets of multiple investors into a fund but are paid to deliver results that consistently exceed the rest of the financial markets.
An investment vehicle, such as a mutual fund or hedge fund, is designed to pursue a specific strategy at the formation of the fund. It is the role of the financial manager to make investment decisions that are aligned with that strategy. If the fund strays from its original design in the types of securities that are bought and sold, investors are likely to recognize this and may decide to withdraw assets because the change in strategy no longer meets their needs.
Depending on the type of investment firm, the role of the financial manager will vary when it comes to fees and expenses. The typical fee structure for a hedge fund manager, for instance, includes a two percent management fee and a 20 percent performance fee. If, however, the hedge fund fails to generate profits for clients, that performance fee may be waived. It is the role of the financial manager to get the investment vehicle back to earning profits, then performance fees can be charged again once the hedge fund has recouped any losses that it cost investors. A mutual fund's fees are tied to the value of assets managed on behalf of investors.
Hedge funds usually require a large minimum investment for investors to participate. Mutual funds may have a minimum requirement, but that amount will likely be less than hedge fund requirements. It is the role of the financial manager to clearly outline the fees, expenses, and investment minimums to investors and prospective investors. Mutual funds have stricter regulatory guidelines than hedge funds, and these financial details can be included in a prospectus, a public filing that is available for investors to read.