Fund Managers and Their Investors

Abstract

Chapter 3 examines the mechanisms through which clients impact fund managers’ practices and vice versa. The discussion encompasses fixed income investment as well as investment in shares. In both fixed income and shares, clients can include both institutional investors (such as pension funds) and retail investors (i.e. private individuals, though often guided by financial advisers). Their reasons for investment vary, leading to different time-horizons on their decisions, different ways of measuring performance, and different forms of interaction with the rest of the investment chain. They often rely on various types of advisers: investment consultants, independent financial advisers, and fund-rating companies. Variations of those kinds among the clients influence fund managers’ investment decisions, whether intentionally or not. Thus, the chapter suggests that the client–fund manager relationship is not a simple principal–agent problem, but a multi-faceted, contextually dependent, malleable matter.