What does an alternative asset manager do?

What is an Alternative Asset Manager?

Alternative assets typically refer to investments that are not traded on public exchanges, such as private equity, hedge funds, real estate, infrastructure, commodities, and other non-traditional, non-publicly traded assets. Alternative asset managers, therefore, are financial professionals or firms that specialize in identifying, executing, and managing these types of asset classes, which have the potential to generate higher returns than traditional asset classes.

The strategies employed by these managers may, for example, include derivatives – contracts that derive their value from the performance of an underlying entity like an asset, index, or interest rate – and leverage, any technique involving borrowing funds to buy things, estimating that future profits will be many times more than the cost of borrowing.

Alternative asset managers most commonly work with institutional investors, high- and ultra-high-net-worth individuals and families to design customized investment portfolios that fit their clients’ risk tolerance and financial goals. They take a particularly personalized approach to their work and offer diversification benefits and access to investments that are often unavailable to the general public. They also play an important role in the overall economy by providing capital to companies and projects that may not have access to traditional sources of financing.

What does an Alternative Asset Manager do?

The day-to-day tasks of alternative asset managers include analyzing financial statements and economic market data, monitoring portfolio performance, conducting research on potential investment opportunities, developing financial models, and communicating with clients about investment strategy and performance. They may also be responsible for negotiating terms and managing relationships with portfolio companies or partners.

Types of Alternative Asset Managers
Here’s an overview of the different types of alternative asset managers:

• Private Equity Manager – These alternative asset managers invest in privately held companies. They typically acquire a controlling or significant stake in the company and work closely with management to help improve operations and drive growth. Private equity firms typically have a long-term investment horizon and may exit their investment through an initial public offering (IPO) or sale to another company.
• Hedge Fund Manager – Alternative asset managers who focus on hedge funds use a variety of strategies to generate returns, such as long/short equity, global macro, and event-driven. Hedge funds often use leverage to amplify returns and may use derivatives to hedge against market risks.
• Real Estate Investment Manager – These alternative asset managers invest in real estate assets such as office buildings, retail spaces, and residential properties. They may also invest in real estate debt, such as mortgages and commercial loans.
• Infrastructure Investment Managers – These alternative asset managers invest in infrastructure assets such as toll roads, airports, and utilities. They may also invest in renewable energy projects, such as wind and solar farms.
• Commodity Trading Advisors – These alternative asset managers trade commodities such as gold, oil, and agricultural products. They may use a variety of strategies, such as trend following and mean reversion, to generate returns. Mean reversion tends to be a high probability system with low reward and high risk per trade. Conversely, trend following tends to be a low probability system with high reward and low risk per trade.

Alternative asset managers may also specialize in specific asset classes, investment strategies, or industry sectors. Here are a few examples:

• Venture Capital – Venture capital managers specialize in investing in early-stage companies with high growth potential. They typically focus on technology and innovation-driven industries such as software, biotech, and fintech.
• Distressed Debt – Distressed debt managers specialize in investing in the debt of companies that are experiencing financial distress. They may work to restructure the company's debt, improve operations, and position the company for a successful turnaround.
• Emerging Markets – Some alternative asset managers specialize in investing in emerging markets such as China, India, and Brazil. These managers may have unique expertise in navigating the regulatory and cultural challenges of investing in these markets.
• Private Credit – Private credit managers specialize in providing financing to non-publicly traded companies. They may offer senior secured loans, mezzanine debt, or other forms of credit to help companies grow and expand.

What is the workplace of an Alternative Asset Manager like?

Alternative asset managers can be employed by a variety of organizations, including:

• Asset management firms – Examples include Blackstone, Vanguard Group, Fidelity Investments, UBS Group, State Street Global Advisors, Morgan Stanley, Allianz Group, Capital Group, and Goldman Sachs.
• Hedge fund firms – Examples include Bridgewater Associates, Man Group, Renaissance Technologies, Millennium Management LLC, Citadel LLC, D.E. Shaw & Co., Two Sigma, Davidson Kempner Capital Management, Farallon Capital, and The Children’s Investment Fund Management.
• Banks and financial institutions – Examples include JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co., Citigroup Inc., BNP Paribas, and HSBC Holdings.

Also employing alternative asset managers are endowments and foundations, as well as family offices, which are private wealth management firms that manage the assets of ultra-high net worth individuals.

While the workplaces of alternative asset managers can vary depending on the type of organization that employs them and the specific role they have within that organization, the following are some characteristics of the typical alternative asset management environment:

• Office-based – Alternative asset managers usually work in an office environment, whether it's in a large corporate office or a smaller boutique firm. However, they may also travel frequently to meet with clients or explore investment opportunities.
• Collaborative – Alternative asset managers often collaborate with a team of professionals, including analysts, portfolio managers, and traders. They may also work closely with legal and compliance professionals to ensure that their investments comply with regulatory requirements.
• Fast-paced – The world of alternative investments moves quickly, and alternative asset managers must be able to adapt to changing market conditions and investment opportunities. This creates a fast-paced and dynamic work environment.
• High-pressure – Alternative asset managers are responsible for generating returns for their clients, naturally creating a high-pressure work environment. They must make informed investment decisions quickly and be able to manage risk effectively.
• Technologically advanced – Alternative asset managers rely heavily on technology to analyze investment opportunities, monitor portfolio performance, and manage risk. Their work, therefore, involves sophisticated data analytics tools, trading algorithms, and other technology-driven solutions.