Fund management: definition, operation and how to invest

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Fund management is one of the pillars of the financial industry. It allows individuals and institutions to entrust their capital to professionals who invest according to a defined strategy, within a strict regulatory framework. In France, the asset management industry represented more than 4.6 trillion euros under management in 2024 according to the AFG (French Financial Management Association). What does this profession actually cover, how does it work and how do you access it as an saver? This guide goes around the question.

What is fund management?

Definition of fund management

Fund management, also called asset management, refers to the activity of investing the capital of one or more investors according to a defined strategy, with the aim of generating a return over the long term. It can be exercised on all types of assets: listed shares, bonds, bonds, real estate, private equity, commodities, currencies, infrastructures, etc.

Concretely, the investor does not manage his portfolio himself: he delegates this responsibility to a professional management company, which makes purchase, sale and allocation decisions on behalf of the investor, in accordance with the mandate or regulations of the fund.

Fund management players

The fund management ecosystem brings together several actors with complementary roles:

• Management companies (asset managers): approved structures that manage funds. In France, there are around 700 management companies approved by the AMF.
• The trustees : banks responsible for maintaining assets and controlling the regularity of transactions.
• The distributors : banks, wealth management advisors, brokers and online platforms that market funds to savers.
• Regulators : in France, the AMF (Autorité des Marches Financiers) supervises and issues approvals. At the European level, ESMA harmonises the rules.
• Investors : individuals, institutions, family offices, pension funds, insurance companies, which provide capital to invest.

How does fund management work?

Active management vs passive management

Two main approaches coexist in fund management.

La active management consists in selecting stocks or strategies in order to outperform a benchmark index. The manager arbitrates, adjusts positions, takes sectoral or geographic bets. Management fees are higher, but the potential for outperformance is real for the best managers.

La passive management consists in replicating an index (CAC 40, S&P 500, MSCI World) without trying to beat it. ETFs (Exchange Traded Funds) are the emblematic vehicle of this approach. The fees are very low (0.1 to 0.5% per year) and the performance faithfully follows the replicated index.

Mandated management vs collective management

There are two structural models that allow fund management to be practised.

La collective management brings together several investors within the same vehicle (UCITS, FCP, SICAV, FCPI, FPCI). All subscribers hold shares in proportion to their contribution and benefit from the same investment strategy. It is the most common model for individuals.

La management under mandate consists in the management company managing an individualized portfolio on behalf of a single client, in compliance with a contractual mandate. This model has historically been reserved for wealthy investors, but platforms like Fundora make it accessible to individuals through mutual structures.

The different types of managed funds

Management companies offer a wide variety of funds, segmented by asset class and strategy.

Fund management fees

Fees are a key factor to understand before subscribing to a fund. They include:

• Entry fees : taken at the time of subscription, generally between 0% and 5%. Often negotiable.
• Annual management fees : taken continuously from net assets, between 0.1% (ETF) and 3% (sophisticated active management).
• Outperformance fees (carried interest): commission charged by the management company when performance exceeds a defined threshold, common in private equity.
• Exit fees : levied upon repurchase, generally low or zero.

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The regulatory framework for fund management

The AMF and the approval of management companies

In France, any company that wishes to manage funds on behalf of third parties must obtain an authorization issued by the AMF. This approval implies:

• Respect for minimum equity
• The presence of competent and honorable leaders
• The establishment of internal control and risk management procedures
• The separation between managed assets and the company's own assets

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Investor protection

Several mechanisms protect investors in the event of a failure by the management company:

• Separation of assets : the assets of the funds are kept with an independent custodian, separate from the management company. In the event of bankruptcy of the latter, the assets cannot be seized by its creditors.
• AMF controls : regular audits, sanctions in case of non-compliance.
• Periodic reporting : management companies are required to communicate to investors net asset values, portfolio composition and fees.

How do I choose a well-managed fund?

Selection criteria

Several criteria make it possible to assess the quality of a fund before subscribing:

• Track record : past performances over 3, 5 and 10 years, compared to a benchmark.
• Regularity : a fund that consistently outperforms is often better than a fund that alternates between very good and very bad years.
• Team stability : a change of manager can call into question future performance.
• Fresh : for equivalent performance, a less expensive fund is preferable.
• Assets under management : a fund that is too big may lose agility, a fund that is too small may lack robustness.
• Coherence of the strategy : the manager must remain faithful to his announced style (value, growth, quality, etc.).

Track record and performance dispersion

In active management, the performance gap between the best and the worst funds is considerable. In private equity, for example, according to Cambridge Associates, funds in the top tier show an annualized return of close to 24%, compared to around 2% for those in the bottom tier. The selection of the manager is therefore a decisive decision: a bad choice can lead to lower returns than a simple index ETF, expenses deducted.

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Current trends in fund management

The asset management industry is experiencing several structural changes that are transforming the way investors access funds.

La democratization among individuals is undoubtedly the most striking trend. For decades, the best strategies (private equity, hedge funds, infrastructure funds) were reserved for institutional investors with entry tickets of several hundred thousand euros. The arrival of specialized platforms combined with new regulatory vehicles (FPCI, ELTIF, SPV structures) now makes it possible to access these strategies from a few hundred euros.

La ESG and SRI management (Environment, Social, Governance and Socially Responsible Investment) is gaining ground. More and more funds are integrating extra-financial criteria in their selection, under pressure from European regulators (SFDR regulations) and from investors themselves.

La theme management is also growing: funds dedicated to artificial intelligence, energy transition, health or biotechnologies. These funds make it possible to target long-term megatrends with concentrated exposure.

Finally, the digitalization of distribution transform access to funds. Online platforms now allow you to subscribe in a few minutes to funds that previously required an appointment with a private banker.

Investing through professional fund management with Fundora

Fundora and Kyoseil Asset Management, a management company approved by the AMF, make private equity fund management strategies usually reserved for institutional investors accessible to individuals. The operation is based on a management model under mandate: Kyoseil manages the allocation on behalf of investors, within the framework of a contractual mandate.

In concrete terms, Fundora structures access to private equity funds via FPCI (Professional Capital Investment Funds) and dedicated SPV (Special Purpose Vehicle) vehicles. This pooling of subscriptions within the same structure makes it possible to lower the entry ticket to 100 euros, where institutional funds usually require between 200,000 euros and several million euros.

The selection focuses on strategies that are in the top 25% of the world in terms of performance, with an objective of multiplying between 2.5x and 4x the capital invested over the fund's horizon. Retail investors thus have access to the same opportunities as pension funds, family offices and institutional investors, within a clear French regulatory framework (management under an AMF mandate).

Investing involves risks of total or partial loss of the capital invested.

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FAQS

What is a fund management company?

A fund management company is a structure approved by the AMF (in France) that invests the capital of investors according to a defined strategy, in compliance with a strict regulatory framework. It receives management fees in return for its service and assumes responsibility for the decisions made on behalf of its clients.

What is the difference between active and passive management?

Active management seeks to outperform an index by selecting stocks, with higher fees (1 to 3%). Passive management replicates an index with very low fees (0.1 to 0.5%). Over the long term, few active funds beat their index after fees, which makes passive management (ETF) often competitive.

What are the fees for fund management?

The fees include entry fees (0 to 5%), annual management fees (0.1 to 3%), outperformance fees (carried interest, current in private equity) and sometimes exit fees. Over a long period of time, the cumulative impact of fees can represent 15 to 30% of the final capital.

Can you invest in fund management on a small budget?

Yes. ETFs allow you to invest in funds starting at a few dozen euros via an online broker. For private equity management under mandate, platforms like Fundora allow access to professional strategies from 100 euros, thanks to an FPCI/SPV structure that pools subscriptions.

How can you verify that a management company is reliable?

Verify the AMF approval (the approval number, type GP-99040, is public and available on the AMF website), examine the track record over several years, check the stability of the management team, read the DICI (Key Investor Information Document) and ensure that the fees are clearly detailed.

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