Management Investment Company: What it is, How it Works (2024)

What Is a Management Investment Company?

A management investment company is a type of investment company that manages publicly issuedfund shares.

Management investment companies can manage both open-end funds and closed-end funds.

Understanding Management Investment Companies

A management investment company manages capital for clients through pooled funds. U.S. investment market legislation has classified investment companies into three categories under the Investment Company Act of 1940. Section Four of the 1940 Act breaks down the classification of companies as:

  1. Face-amount certificate company
  2. Unit investment trust
  3. Management (investment) company

Key Takeaways

  • A management investment company is a type of investment company that manages publicly issued fund shares.
  • Management investment companies can manage both open-end funds and closed-end funds.
  • Open-end funds do not have a designated number of shares available for trading; closed-end funds offer a specific number of shares to the market.

Section Five of the 1940 Act provides further details on management investment companies. Management investment companies can be either open-end or closed-end companies. Section Five of the 1940 Act also further outlines these companies by diversified and non-diversified companies.

Open-End and Closed-End

Management investment companies issue shares of funds from pooled investment. Investors buy shares of funds that incur sales commission charges as well as operational expenses. Funds management investment companies manage must comply with U.S. securities regulations. Regulations support fair market activities, investor education, and transparency.

The funds managed by management investment companies trade on exchanges or through open-end management companies and are known as publicly traded investments. Management investment companies offer investors publicly traded pooled fund investments in a broad range of standard and complex investment strategies.

Within the management investment company universe, the largest investment companies in the U.S. include BlackRock, Vanguard, State Street Global Advisors, Fidelity, and Bank of New York Mellon Investment Management.

Open-End Funds

Open-end management investment companies manage open-end funds. They can be offered as either a mutual fund or exchange-traded fund (ETF). Open-end funds do not have a designated number of shares available for trading. The management investment company can issue and redeem shares of open-end mutual funds and ETFs at their discretion.

Open-end mutual funds are known to offer a range of share classes. Open-end management investment companies structure share classes with different fees that investors must pay when transacting with an intermediary. Open-end mutual funds do not trade on a market exchange; they're transacted through the mutual fund company. Transactions are processed at the fund’s next reported net asset value, also known as the forward price.

Exchange-traded funds are traded daily on exchanges. Exchange-traded funds can trade at a discount or premium to their NAV. They may also trade at par value. Management investment company authorized participants actively monitor ETF prices and exchange trading with the ability to create and redeem shares at their discretion to manage the price of an ETF.

Closed-End Funds

Closed-end management investment companies manage closed-end funds. They offer a specific number of shares to the market in an initial public offering. Closed-end management investment companies do not create or redeem shares following the public offering. Closed-end funds trade daily on exchanges. They are known to trade at a discount or premium to their NAV.

Diversified and Non-Diversified

In addition to discussing open-end and closed-end management investment companies, Section Five of the 1940 Act also explains diversified and non-diversified management investment companies. Diversified management investment companies have assets that fall within the 75-5-10 rule.

A 75-5-10 diversified management investment company will have 75% of its assets in other issuers and cash, no more than 5% of assets in any one company, and no more than 10% ownership of any company's outstanding voting stock. Any management investment company not falling within the 75-5-10 rule is considered a non-diversified management investment company.

Management Investment Company: What it is, How it Works (2024)


How does an investment management company work? ›

What is investment management? Put simply, investment management firms invest their clients' money. They choose the right selection of investments - from fast-growing, risky stocks to safe but slow-growing bonds. The aim is to achieve the return the client needs at a level of risk they're comfortable with.

How does an investment company work? ›

An investment company is a corporation or trust engaged in the business of investing the pooled capital of investors in financial securities. This is most often done either through a closed-end fund or an open-end fund (also referred to as a mutual fund).

What is considered a management investment company? ›

A management investment company is a type of investment company that manages publicly issued fund shares. Management investment companies can manage both open-end funds and closed-end funds.

What is the work in investment management? ›

They develop and implement investment strategies, allocate assets, manage risk, and monitor the performance of their clients' portfolios. They also maintain ongoing communication with their clients to ensure that the investment objectives remain aligned with the clients' financial goals and risk tolerance.

What are the steps in the investment management process? ›

The Investment Planning and Management Process
  • Step 1 - Establishing Investment Goals and Objectives. ...
  • Step 2 - Determining Risk Tolerance and Appropriate Asset Allocation. ...
  • Step 3 - Creating the Investment Portfolio. ...
  • Step 4 - Monitoring and Reporting. ...
  • Summary.

How do investment management firms make money? ›

Generally, they sell products such as mutual funds or exchange-traded funds and manage private accounts for other companies. In exchange for these services, they charge fees that most often represent a percentage of the assets under management.

How are investments paid out? ›

There are two main ways that companies can distribute earnings to investors: dividends and share buybacks. With dividends, payouts are made by corporations to their investors and can be in the form of cash dividends or stock dividends.

How do investment companies get paid? ›

Fees, Fees, Fees: Investment companies often charge fees for managing your investments. These can be upfront fees (like load fees) or ongoing management fees. These small percentages might seem insignificant, but they add up, especially when they manage massive portfolios. 2.

What do I need to start an investment management company? ›

  1. Choose the Name for Your Investment Company. ...
  2. Develop Your Investment Company Business Plan. ...
  3. Choose the Legal Structure for Your Investment Company. ...
  4. Secure Startup Funding for Your Investment Company (If Needed) ...
  5. Secure a Location for Your Business. ...
  6. Register Your Investment Company with the IRS. ...
  7. Open a Business Bank Account.

What is an example of a management company? ›

Management Company Example

FinC is a firm that offers financial services to individual and corporate investors. The company has a significant portfolio that they manage on behalf of their clients. The funds from the portfolio are managed by another company called FinC Investment, this is a partner company of FinC.

What is the difference between management company and investment company? ›

The main differences between a management and advisory firm and an investment company are: 1) The investment company has one fund where the entire client's amount is pooled, but in a management and advisory firm, each individual and institution has a distinct and separate account.

Why work for an investment management company? ›

Investment Management is an industry demanding highly analytical and dedicated individuals. In return it provides a challenging and stimulating environment where high calibre candidates can thrive in a fast paced environment.

What skills do you need for investment management? ›

Key skills for investment fund managers
  • excellent written and spoken communication skills.
  • confidence.
  • research skills.
  • strong time management skills.
  • the ability to work effectively under pressure.
  • excellent numerical and IT skills.
  • analytical and problem-solving skills.
  • teamworking skills.
Jul 7, 2023

How hard is investment management? ›

Managing investments requires strong knowledge of the financial markets. Most professionals tend to specialize in a particular asset class, for example, equities or bonds. Success usually requires an advanced degree in a financial discipline and professional certifications.

What percentage do investment managers take? ›

The management fee varies but usually ranges anywhere from 0.20% to 2.00%, depending on factors such as management style and size of the investment. Investment firms that are more passive with their investments generally charge a lower fee relative to those that manage their investments more actively.

Is it worth getting an investment manager? ›

If you're a high-net-worth individual, you might need someone to give you personalized, tailored advice and make financial decisions on your behalf. That's a wealth manager. They have strong knowledge in managing investments, estates and tax planning and other financial topics.

How do investment managers get paid? ›

Their fee is often based on a percentage of client assets under management (AUM). An individual with a $5 million portfolio handled by an investment manager who charges 1.5 percent annually would pay $75,000 in fees per year.

How much money do you need for an investment manager? ›

Generally, having between $50,000 and $500,000 of liquid assets to invest can be a good point to start looking at hiring a financial advisor. Some advisors have minimum asset thresholds. This could be a relatively low figure, like $25,000, but it could $500,000, $1 million or even more.

Top Articles
Latest Posts
Article information

Author: Ouida Strosin DO

Last Updated:

Views: 5937

Rating: 4.6 / 5 (76 voted)

Reviews: 83% of readers found this page helpful

Author information

Name: Ouida Strosin DO

Birthday: 1995-04-27

Address: Suite 927 930 Kilback Radial, Candidaville, TN 87795

Phone: +8561498978366

Job: Legacy Manufacturing Specialist

Hobby: Singing, Mountain biking, Water sports, Water sports, Taxidermy, Polo, Pet

Introduction: My name is Ouida Strosin DO, I am a precious, combative, spotless, modern, spotless, beautiful, precious person who loves writing and wants to share my knowledge and understanding with you.