What is a Management Company?

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A management company is a business that was created to handle specific resources owned by a fund, it is usually managed by a team of experts. The management companies provide services to their clients. The services could include basic accounting, evaluation of business fund, doing research about the market, investing the fund money and tax advice.

What Does Management Company Mean?

A company that provides a particular fund with financial services and investments is usually divided into two parts:

  • The company that receives and hold the funds from the investors
  • A company that administer the funds by investing them according to the fund’s specifications.

The management company is a separate entity that decides how the money of the fund will be allocated. The company exists typically out of:

  • Investment professionals
  • Accountants
  • Economists
  • Other business experts

These experts will provide advice to the managers in charge of the fund.

The management company will charge a fee from the fund for the services rendered. The price is usually a percentage of the total value of the fund that is being managed.

Management Companies can manage both open-ended and closed-ended funds.

  • Open-Ended funds

Management companies that manage open-ended funds can offer either a mutual fund or exchange-traded fund (EFT) to their clients. There is no designated number of shares available for trading, the company can issue and redeem shares based on their discretion.

There is a range of share classes available to invest in open-ended funds. These funds do not trade on a market exchange they transact through a mutual fund company. Transactions are processed at the forward price.

EFTs are traded daily on the exchanges. It can be sold at a discount, premium or par value. The management investment company will actively monitor the trading and create or redeem shares based on their discretion.

  • Closed-Ended Funds

These funds have a specific number of shares in the market. The management companies do not create or redeem shares. The company trade the stock daily on the exchanges at a discount or premium amount.

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.

FinC Investment hires experts to handle the operational management of the fund. FinC investments charge a small percentage to their clients to manage the fund.

Management Company Conclusion

  • A management company is a business that was created to handle specific resources owned by a fund, it is usually managed by a team of experts.
  • The management companies provide services to their clients. The services could include basic accounting, evaluation of business fund, doing research about the market, investing the fund money and tax advice.
  • A management company are divided into two parts
    • The company that receives and hold the funds from the investors
    • A company that administer the funds by investing them according to the fund’s specifications.
  • Management companies can manage open-ended or closed-ended funds