Choosing an investment manager these days is like shopping for a used car. Investors have a wide spectrum of options to choose from, depending on how much they want to invest and their future financial needs. No single article can encompass all the nuts and bolts of the asset management industry, but the following guideposts should help steer you in the right direction.

Public or private?
The ultimate choice to invest in public (i.e., mutual funds) versus private asset management funds may be out of your control. Most private funds (a.k.a. hedge funds or private equity funds) are usually open to high-net-worth individuals and require a minimum investment of at least six figures. So before you begin exploring your options, determine whether your current situation allows you to invest in a public fund or private fund. Excellent opportunities exist in both arenas. If you prefer mutual funds, the Fairholme Fund (Nasdaq: FAIRX), run by Bruce Berkowitz, or the Longleaf Funds, run by Mason Hawkins, are two very solid bets.

Before picking a public or private fund, it's wise to understand the advantages and disadvantages of each. Private investment funds usually offer the individual investor more specific investment options, allowing you to choose the most specific of asset classes. Over the years, more public funds have emerged to provide more hedge-fund-like asset exposure. Still, private investment pools do benefit those looking to gain very specific exposure to a particular asset class.

For these unique opportunities, you have to be patient. Most hedge funds require investors to agree to a capital lock period of several years, depending on their particular investment strategy. Hedge fund investment strategies are often geared toward longer-term performance, and hedge fund managers can't risk having significant withdrawals of assets during inopportune times.

Public investment funds, on the other hand, which include mutual funds, offer individual investors much more flexibility. With as little as a few hundred dollars, most funds allow investors to participate in a wide variety of different investments. Because mutual funds are open to a wider pool of investors, thousands of them exist, and finding the right one can be downright daunting. But like every other financial decision you make, you must be prepared to roll up your sleeves and explore your various options.

Ultimately, however, how the managers allocate your money is at least as important as what types of assets the fund invests in.

Details are very important
Once you have decided whether a public or private fund is more appropriate for you, the real work begins. One key element is that your asset manager's interests should be aligned with yours. While no asset manager can ever guarantee you results, they can guarantee that they will be in the driver's seat with you at all times. 

There are two very quick and important tests to gauge this alignment of interest:

  • A personal stake in the fund: How much of his or her money is invested alongside yours? You should be firm in this requirement. Asset managers will behave prudently with your money if it's also their money. Warren Buffett's discipline doesn't waver at Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B), because more than 99% of his net worth is tied to its shares.
  • Fee structure: While you have to expect asset management fees, they shouldn't be excessive. They should be reasonable enough to cover the necessary expenses, but beyond that, performance-based compensation is optimal. That way, your manager profits when you profit, and feels the pinch when you take a hit.

These aren't the only factors you should consider, but they do offer two very important initial filters to begin your search. Some managers who work for large funds that offer families of funds might have assets spread out through various funds.

It's just business
In general, it's important to choose your asset managers in a businesslike fashion. As with picking stocks, you'll do better if you stick to your circle of competence. For instance, as a stock investor, if you don't understand financials, you might not invest in Citigroup (NYSE: C). And if technology is beyond your understanding, then investing in Microsoft (Nasdaq: MSFT) or Intel (Nasdaq: INTC) might not be the direction you want to go.

Similarly, if you can't understand the approach or investment objectives of your asset manager, then look elsewhere. There are so many choices out there that there's no reason to compromise your standards. With some due diligence, you can find the style that suits your needs. Just remember that the reason for investing is to gradually increase your wealth over a long period of time.

For further related Foolishness:

Microsoft, Intel, and Berkshire Hathaway are Inside Value recommendations. For more helpful tips to find the best values in the market, sign up today for a free 30-day trial subscription.

Sham Gad is managing partner of the Gad Partners Fund, a value-centric investment partnership operating in similar fashion to the 1950s Buffett Partnerships. Sham eats only his own cooking and always will. He has a stake in Berkshire Hathaway. The Motley Fool owns shares of Berkshire Hathaway, which is also a Stock Advisor recommendation. Fairholme Fund is a Champion Funds recommendation. The Fool has a disclosure policy for public and private display.