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CHAPTER 17
PROFESSIONAL MONEY MANAGEMENT,
ALTERNATIVE ASSETS, AND INDUSTRY ETHICS
I. The Asset Management Industry: Structure and Evolution
A. Organization of Professional Asset Management Firms
1. Individuals as well as institutional investors make contracts directly with a
II. Private Management and Advisory Firms ((Exhibit 17.1)
A. Investment Strategy at a Representative Private Management Firm ((Exhibit 17.4)
III. Organization and Management of Investment Companies
Portfolio management and most of the other administrative duties are handled by
B. Closed-End versus Open-End Investment Companies
1. Closed-End Investment Companies
a. Operate like any other public company
c. The NAV and market price of closed-end funds are rarely the same
2. Open-End Investment Companies
a. Continue to sell and repurchase shares after their initial public offerings
b. Load Versus No-Load Open-End Funds
a. Equity Funds
b. Balanced Funds
IV. Hedge Funds and Private Equity
A. Hedge Funds
1. Characteristics of a Hedge Fund
2. Hedge fund Strategies
a. Equity-based Strategies
4. Hedge Fund Performance
B. Private Equity (PE)
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
1. Organization of the Private Equity Market
V. Ethics and Regulation in the Professional Asset Management Industry
Agency conflicts inherent in financial relationships
A. Regulation in the Asset Management Industry
B. Standards for Ethical Behaviour ((Exhibit 17.18)
1. The CFA (Chartered Financial Analysts) Institute – formerly known as the
C. Examples of Ethical Conflicts
1. Incentive Compensation Schemes