Asset Management

What is Asset Management?

Asset management is investing clients’ money in the right assets to ensure optimum returns. Asset management companies (AMCs) make investment decisions on behalf of their clients. These companies usually serve huge organizations like insurance companies, pension funds, sovereign wealth funds, and High-Net-Worth Individuals.

Asset management is driven by an investment mandate. The mandate contains instructions to manage a certain pool of assets in a specific way. Asset managers follow these predetermined risk parameters and investment strategies. For these services, asset management companies charge a significant amount in fees.  

Key Takeaways
  • Asset management involves planning, acquiring, deploying, managing, and disposing of a client’s assets. Asset managers aid individuals and institutions in attaining financial goals.
  • Asset Management Companies (AMCs) deliver value to the High-Net-Worth Individuals, government institutions, insurance companies, charities, sovereign wealth funds, pension fund organizations, and other small and large firms.
  • The different career options in this field include financial analyst, research analyst, financial advisor, investment broker, and asset manager.

Understanding Asset Management

Asset managers strategically design and manage client asset portfolios to ensure growth. To diversify client portfolios, Asset Management companies (AMCs) include various asset classes. AMCs combine equities, bonds, cash, cash equivalents, real estate, mutual funds, commodities, and marketable securities. There is a minimum investment limit below which AMCs don’t take up projects. This is also known as the wealth limit.

Though employing an Asset Management Company is an expensive proposition, it sure comes with its perks. For starters, an AMC holds expertise. Moreover, clients save time, money, and effort. Additionally, asset managers research a wide range of investments before settling on handpicked options that suit the client. The benefits go beyond just profits, AMCs also facilitate risk mitigation. AMCs provide their clients with alternative investment services; brokerage, credit cards, money market funds, and debit cards.  

Despite the promise, the limitations cannot be overlooked. Most AMCs don’t serve low-end investors, be it an individual or a small business. Also, these firms charge a significant fee for managing. For some clients, this becomes an avoidable burden. Experience and expertise do not eliminate human error; strategies can go wrong, potentially resulting in a significant loss for the client.

Asset Management System

An asset management system is a framework that facilitates the use of various business software, applications, and infrastructure to strategically plan and manage assets. The system focuses on optimum returns and balancing risk. In addition, it keeps an eye on the asset performance throughout its lifespan.

In other words, it simplifies the tracking of corporate assets, their condition and facilitates better planning. In order to maximize returns, the cost of maintaining operational and fixed assets should be minimized. An asset could be finance, property, plant, equipment, IT, or personnel. Ivanti, GoCodes, Asset Panda, and InvGate are the popular software used for managing assets.

Asset-Management

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Asset Management Process

Managing assets involve the following steps:

  1. First, existing assets are assessed. The need and purpose of a portfolio are determined.
  2. The condition of existing assets is diagnosed to determine if they meet financial objectives.
  3. Next, the extent to which the assets realize their purpose is ascertained.
  4. The feasibility of future endeavors is determined. Based on future demands, the need for new assets is identified.
  5. Then asset managers analyze asset lifecycle and efficiency to ascertain a maintenance cost.
  6. The depreciation rate of the assets and their overall impact is evaluated. The potential risk associated with each asset is quantified.
  7. Finally, assert managers predict each asset’s lifespan, salvage value, and disposal strategy.

Types

The different methods of managing assets are as follows.

  1. Financial Asset Management (FAM): It refers to the strategic allocation of funds into various financial market instruments like investment funds, stocks, bonds, futures, and derivatives.
  2. Fixed Asset Management: Companies require property, plant, machinery, equipment, and other fixed assets for their functioning, the regulation of these assets falls under this category.
  3. Infrastructure Asset Management: The facilities that ensure connectivity and accessibility act as assets for a nation. These include roads, bridges, transportation, internet, electricity, and telephones. For infrastructural assets, managers focus on the development, improvement, and replacement of amenities.
  4. Real Estate Asset Management: These Asset Management Companies direct financial resources into buying or construction of commercial properties.
  5. IT Asset Management (ITAM): Information technology is an inseparable component of the corporate world, and this discipline handles software and hardware assets. This includes computer systems, patents, licenses, applications, and networks.
  6. Digital Asset Management (DAM): Digital assets like content, social media presence, websites, media, and other intellectual properties are regulated through DAM.
  7. Enterprise Asset Management (EAM): The EAM handles both tangible assets and intangible assets of a firm. It looks after infrastructure, software, documentation, premises, and process.

Asset Management Examples

Consider the following examples to better understand how assets are managed.

J.P. Morgan aims to build and strengthen the client’s portfolio. The AMC manages individuals, intermediaries, and institutions. They have a global team of investment professionals to introduce well-researched investment opportunities.

Their trending options include ETF investing, separately managed accounts, variable insurance portfolios, commingled pension trust funds, and sustainable investments.

Credit Suisse is another big name among AMCs. This corporation has come up with innovative solutions by exploring a range of different asset classes. In addition, they have added the ESG factor to their product range and have worked upon interesting investment themes like edutainment, security, and digital health.

They offer a wide range of products, including sustainable investing, thematic equity investing, convertible bonds, and emerging corporate bonds. At present, they have 471 billion CHF worth of Assets under Management (AuM).

Importance

The benefits of hiring AMCs are as follows.

  • Selection of Appropriate Investment Vehicles: The primary role of an AMC is determining ideal investments. AMCs also determine which assets should be avoided.
  • Risk Diagnosis and Moderation: Asset managers check the level of risk involved in an asset portfolio and take measures to reduce it.
  • Overall Asset Evaluation: AMC reviews all tangible and intangible assets from time to time. This way, they are updated on what their usable assets are.
  • Eliminating Dead Assets: Asset managers are always aware of when assets exhaust. Exhausted assets only hold a place in the accounting books and have no usability in the market. But these entries keep the financial records realistic.  
  • Add Value to Client’s Portfolio: Asset managers incorporate valuable investments to facilitate clients’ investment objectives.

A Career in Asset Management

Careers in Asset Management Companies include financial analysts, financial advisors, investment brokers, portfolio managers, and asset managers.  Most AMCs are mutual fund companies or investment banks. To begin with, aspirants need a finance or economics degree. Candidates can acquire advanced finance certifications and degree courses like chartered financial analyst (CFA), MBA Finance, and FINRA series six exams. Subsequently, with added experience, analysts can scale up to become an advisor and even a manager.

The only way to succeed in this career is by building effective relationships and a growing clientele. Glassdoor reports an average of $95002 offered to asset managers in the US. The base pay starts at $56000 and goes as high as $200000. Asset-managemt is a promising career option.

Frequently Asked Questions (FAQs)

What are asset management companies?

Asset Management Companies create asset portfolios. They streamline clients’ financial resources into the right investment options. The purpose of an AMC is to yield maximum returns and mitigate risk.

What are the different asset classes?

The different asset classes include equities, commodities, bonds, futures, derivatives, real estate, cash, cash equivalents, marketable securities, and mutual funds.

Is asset management a good career?

Asset Management is a rewarding career option. There is a wide range of opportunities for the aspirants in large financial corporations like JP Morgan, Wells Fargo, Morgan Stanley, Soltage, and Deutschebank. Growth opportunities are even better than the banking sector. Aspiring candidates require analytical skills, market knowledge, decision-making ability, problem-solving, and communication skill.

This has been a guide to Asset Management and its meaning. Here we discuss asset management system, process, and importance using examples. You can learn more about financing from the following articles –

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