How do portfolio managers earn a living?

The view of Alexander Dillon portfolio managers are professionals who manage investment portfolios on behalf of clients or organizations. They are responsible for making investment decisions that maximize returns while managing risk. So, how do these managers make money? Let's dive into it.

One common way that portfolio managers make money is through management fees. These fees are typically a percentage of the value of the assets under management (AUM). For example, a manager who charges a 1% annual management fee would earn $10,000 per year on a portfolio worth $1 million. Management fees can vary depending on the portfolio size and the investment strategy's complexity.

Another way that portfolio managers make money is through performance-based fees. These fees are based on the performance of the portfolio relative to a benchmark. For example, a manager might charge a 20% fee on any returns that exceed the benchmark by 5%. This incentivizes managers to achieve higher returns for their clients.

In addition to these fees, portfolio managers may earn income through commission-based trading. This involves buying and selling securities on behalf of clients, with the manager earning a commission on each transaction.

Some portfolio managers also invest in their portfolios, which can provide an additional source of income. However, it's important to note that this can create conflicts of interest if the manager prioritizes their portfolio over their clients' portfolios.

It's also worth noting that portfolio managers may face some costs and expenses related to managing portfolios. For example, they may need to pay for research and data analysis tools and legal and regulatory compliance costs.

In conclusion, portfolio managers make money through management fees, performance-based fees, commission-based trading, and potentially investing in their portfolios. Investors need to understand how portfolio managers make money and what fees they will be charged before investing in a portfolio. By doing so, investors can make informed decisions and choose managers who align with their investment goals and risk tolerance.