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Banking Essentials - Part I

This pathway will walk us through the basics of banks, starting with some of the different types and their main functions, then starting to look at the regulation faced by the banks, both before and after the Global Financial Crisis.

Greenwashing

Greenwashing is the act of distributing false information about something being more environmentally friendly than it actually is.

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In this video, Max discusses the cost-of-living crisis currently enveloping the UK. He examines its impact on households as well as the overall economy.

CSR and Sustainability in Financial Services

In the first video of this two-part video series, Elisa introduces us to sustainability. She begins by looking at the difference between sustainability and corporate social responsibility, two terms that can be easily confused.

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Front Office Functions in Asset Management

Front Office Functions in Asset Management

Trevor Pugh

20 years: Trading & hedge funds

In the first video of this two-part series, Trevor covers the teams and functions across the whole asset management firm. In this video, he will look at the front office functions.

In the first video of this two-part series, Trevor covers the teams and functions across the whole asset management firm. In this video, he will look at the front office functions.

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Front Office Functions in Asset Management

8 mins 48 secs

Overview

Just like most other large financial firms, asset managers split functions into front, middle and back offices. The front office relates to the part of the asset management firm that is in close proximity to clients. It is split into manufacturing, who are responsible for investing investors money, and the distribution side, which deals with existing and potential clients, selling the asset management company’s capabilities. Each of these sections have different teams with different responsibilities.

Key learning objectives:

  • Outline how front office at an asset management firm is divided up

  • Understand how each side of the front office functions

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Summary

How is the front office divided?

The front office is divided into manufacturing and distribution. Manufacturing is the ‘engine’ of the company. It is where the PM’s and the support staff put their views into action. There are four steps involved; research and analysis, model portfolio construction, order management and compliance, and execution. 

Distribution is the side of the business that makes existing and potential investors aware of what is available at the company, this involves using various sales teams. 

How does the manufacturing process work?

Research and analysis: 
This is where ideas are formed. The first part of any analysis involves a fundamental understanding of top-down drivers (macroeconomic and geopolitical developments) alongside a bottom-up analysis of individual stocks, bonds, commodities etc. Alongside the fundamental analysis, it is essential to be aware of the technical factors in the market (market positioning, sentiment ec). Research can be quantitative or qualitative. 

Model portfolio construction:
Once views and ideas are established, building a portfolio is next. It combines the outlook from the research and analysis with the client or fund’s risk return characteristics and guideline restrictions. The investment team decides the allocation of underlying assets given market conditions. 

Order management and compliance:
This step prepares the necessary trades required to ensure the model portfolio is achieved, such as selling existing holdings, buying new holdings or taking certain currency positions. 

Execution: 
Once the trading desk has received the order from the order management system it will execute the trade in line with best execution practices. The trading desk executes the positions across an appropriate number of counterparties to ensure that price, liquidity and timing are optimised.

How does distribution work? 

For the asset management company to make investors aware of the services and products it provides it needs sales teams. Sales teams are segregated by client type as well as geography. 

As well as promoting the products, the teams provide feedback to the manufacturing and business development side of the business as to what products should be the priority going forward. 

 

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Trevor Pugh

Trevor Pugh

Trevor has worked in finance since 1995. He started his career in investment banking after studying Law at Cambridge and taking a Masters Degree in Financial Services from University College Dublin. Trevor spent 18 years at Barclays investment bank where he became a Managing Director and head of Gilt trading. He currently works as Chief Operating Officer for a hedge fund.

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