CHAPTER 17
PROFESSIONAL PORTFOLIO MANAGEMENT, ALTERNATIVE ASSETS, AND INDUSTRY
ETHICS
17.1 The Asset Management Industry: Structure and Evolution
▪ Two basic ways that traditional asset management firms are organized (Exhibit 17.1, 17.2)
17.2 Private Management and Advisory Firms (Exhibits 17.3 and 17.4)
17.2.1 Investment Strategy at a Private Money Management Firm (Exhibit 17.5)
17.3 Organization and Management of Investment Companies
17.3.1 Valuing Investment Company Shares
17.3.2 Closed-End versus Open-End Investment Companies
▪ Closed-End Investment Companies (Exhibit 17.6)
– Operate like any other public company
17.3.3 Fund Management Fees
▪ Charged to compensate managers of the fund
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17.3.4 Investment Company Portfolio Objectives (Exhibit 17.8)
▪ Equity funds
17.3.5 Breakdown by Fund Characteristics (Exhibits 17.9, 17.10)
17.3.6 Global Investment Companies
▪ Funds that invest in non-U.S. securities are generally called either international funds or
17.3.7 Mutual Fund Organization and Strategy: An Example (Exhibit 17.11)
17.4 Investing in Alternative Asset Classes (Exhibit 17.12)
17.4.1 Hedge Funds (Exhibit 17.13)
17.4.2 Characteristics of a Hedge Fund (Exhibit 17.14)
▪ As a private partnership, hedge funds are generally less restricted in how and where they can
17.4.3 Hedge Fund Strategies
I. Equity-based Strategies
– Long-short equity
– Equity market neutral
17.4.4 Risk Arbitrage and Investing: A Closer Look (Exhibits 17.15)
17.4.5 Hedge Fund Performance (Exhibits 17.16, 17.17)
17.4.6 Private Equity (Exhibits 17.18, 17.19, 17.20)
▪ PE can also include a wide variety of different investment vehicles and strategies.
▪ A PE investment refers to any ownership interest in an asset (or collection of assets) that is
not tradable in a public market.
17.5 Ethics and Regulation in the Professional Asset Management Industry
▪ Agency conflict occurs frequently in financial relationships.
17.5.1 Regulation in the Asset Management Industry (Exhibit 17.24)
▪ The Securities Act of 1933
▪ The Securities Exchange Act of 1934
17.5.2 Standards for Ethical Behavior
▪ The CFA (i.e., Chartered Financial Analysts) Institute has developed for its worldwide
17.5.3 Examples of Ethical Conflicts
17.6 What do you want from a Professional Asset Manager?
