Are Investment Managers As Greedy As They Are Smart?

One would presume that to become an investment manager, a certain level of experience, certification and expertise has to take place in order for them to understand the complexities of investment management. The assertion that an investment manager is greedy may stem from the near collapse of the financial system in the fall of 2008 and the ripple effect that is has had on investments. It may be that an investment manager is as greedy as they are smart but it is also as likely that an investment manager is not.

An Investment Manager’s Responsibility

Investment managers are responsible for managing large portfolios and assets for individual and institutional customers. An institutional investor is one that is a bank trust department, insurance company, state pension fund or other large investor with a lot of assets to invest. The ability of an investment manager to invest these funds on the behalf of their clients requires a lot of investment savvy and knowledge. Investment management is not a hobby or an on-the-job learning pursuit. It must be done by qualified individuals who have put in years of study in order to understand the market’s intricacies.

The Qualifications of an Investment Manager

Most all investment managers have some type of advanced degree such as a M.B.A. or masters in finance. An investment manager also has to hold a certification as a financial analyst. This is the certified financial analyst or CFA exam, which tests the ability of the investment manager to properly manage their client’s assets. In addition to the education and certification piece, an investment manager subscribes to a cannon of ethics designed to guide their activities when dealing with client’s funds.

Correlation between Being an Investment Manager and Greed

There is no empirical data that suggests that merely being an investment manager means that the person is also greedy. There is an opinion that many investment managers reaped huge profits during the run up that lead to the collapse of the financial markets. This profit taking was fueled by a basic disregard for protecting the interests of the client and a herd mentality that fueled greater risks with little regard to their consequences.

Fraudulent Schemes Uncovered in 2008

Certainly, the discovery of the massive fraud by Bernard Madoff Investments and its founder, former NASDAQ chairperson Bernie Madoff and the collapse of AIG because of the irresponsible speculation in unsubstantiated securities were events that could have been foreseen. The existence of the regulatory community is supposed to provide the necessary check on such activities in order to monitor the markets and manage risky behavior. When political philosophies and ideologies interfere with the effective operation of agencies such as the Securities and Exchange Commission, it is easy to see how greed can become pervasive in the financial system. Thankfully a collapse such as the one experienced in 2008 and in 1929 serve as a severe reminder of the stewardship that must be vigilantly maintained to ensure that the interests of the client is always first and foremost. The old adage people before profits should serve as a mantra for all investment managers and other financial professionals.

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