Why is there an investment management business?

A brief history

Once upon a time, in a suburb of Newgen City, there lived a young woman named Jane. She's a hardworking and ambitious person that's always careful with her finances. 

She manages her finances with apps on her phone and moves money around as needed (eg- AppleCard for transactions and bills, CashApp for payments, Robinhood for investments, Fidelity for retirement funds). After months of diligent budgeting, Jane found extra money in her account after paying all her expenses (subscriptions, rent, utilities, car payment, friends, daily costs, et al). 

Determined to make her money work for her, Jane began to explore the world of investing. She knew that she needed to find the right balance between her social values and her financial goals. Jane wanted to invest in companies that aligned with her ethical beliefs, such as sustainability and social responsibility.

Jane started her journey on her own by investing in what she was getting from financial news about Bitcoin and the potential of cryptocurrencies. She wanted some (as they say) just in case. She set up a recurring investment in her Robinhood account, buying a small amount of Bitcoin every Tuesday. As she became more comfortable with investing, Jane also explored Exchange-Traded Funds (ETFs) and common stocks in companies that shared her values.

As her portfolio value grew, Jane decided to start a portfolio strategy with a single initial simple rule she could use to manage her investments. She would sell a portion of her investments when the value had a 15% profit, using the profits to cover the initial cost of the investment (Rule #1). Once covered, the remaining investment would have a cost of zero- essentially "free," and any future profits would be pure gains.

Jane's strategy proved to be successful, and over time, she amassed substantial savings- an individual capital pool. She was not alone in her success, as many of her friends had also started investing and were seeing similar results. The group of friends decided to pool their resources and hire a dedicated portfolio manager to help them navigate the complexities of the financial world. Jane searched on LinkedIn and found Jack, a successful activist investment portfolio manager with several clients that have a similar thought process to Jane's and that her friends were also connected to.

Together Jack and Jane's people formed an investment group with a defined vision; A strategy (Rule #2) to invest in companies that shared their social values while (Rule #3) generating a predictable, profitable return. The group decided their business classification is a private equity firm (eg- private equity, hedge fund, or asset manager). The portfolio manager presented to Jane's group proposals for short-term and long-term investment portfolios as business objectives.

The portfolio manager may also seek out new investment opportunities to present to the group and to fine-tune the percentage of portfolio holdings that focus on the group's specific interests (fiduciary responsibility). The portfolio manager would need to engineer an investment strategy that adapts to the group's changing interests and needs. The portfolio manager has to consider each participant's cash interests, which include occasional cash deposits and potentially unscheduled cash withdrawals. 

Jane and her friends were determined to find a software platform that could support their unique approach to investing. They knew that a system that did not have an exact operational or functional match for their group might be more expensive and less reliable in the long run. They searched for a system that could accommodate their near-term daily processes and help them achieve their daily operational and reporting goals.

As the fund grew, the investors modified their near-term goals and used data mining functions to do predictive price analysis. The portfolio management system they used had a limited warehouse of market data, so they had to be creative in their approach to performance attribution and predictive trading models. Contracting with third-party data providers helps to round out the capabilities of most portfolio management systems as most have the software tools but lack the data the customer is accustomed to using.

Jane and her friends along with Jack's help continue working on their investment strategy that have both their social values and financial goals in focus. Jane continues to navigate the complex world of investing to become a savvy yet socially conscious investor. Jane's story about her investing journey could serve as a model and inspiration for others who believe that it is possible to do well while also doing good.

A journey