Every business, whether you invest, sell or trade, requires a thorough understanding of risks and opportunities. These factors are minutely measured by asset management experts in order to ensure that the business yields a profitable outcome.
Even other investment option like investing in expensive stocks or trading in commodities also needs a deep understanding of risks and advantages.
What exactly is asset management?
Defining the term ‘asset’ is the first step towards understanding asset management. Anything that provides value to its owner and the stakeholder(s) it serves is considered an asset in the broader sense. Assets include stuff like bonds, stocks, homes and commercial office buildings. In the financial industry, the term refers to handling customer money. Asset managers are the financial organizations in charge of managing the funds. They develop and carry out investment plans that add value for their customers. In general, this procedure entails ‘putting money to work’ through the purchase, holding and sale of financial assets that have the ability to meet the investment objectives of a client. Financial assets may be anything from shares in private funds to equities, bonds and commodities.
It entails robust research employing both macro and micro analytical methods to analyze the risks and advantages. This research includes evaluations of firm financial papers, statistical analysis of current market trends, and additional data that might help the client achieve their stated asset appreciation target.
Types of asset management
Before selecting a specific type of asset management, investors must carefully evaluate their investment goals and willingness to take risks as each type of asset management has its own set of advantages and risks. There are many forms of asset management, which comprise the following:
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Traditional asset management
The goal of this kind of strategy is to outperform the market by actively managing portfolios of individual stocks, bonds and other instruments.
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Passive asset management
Low-cost, passively managed investment products, including index funds and exchange-traded funds (ETFs), that track the performance of a particular market index are the primary focus of this category.
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Real asset management
It focusses mostly on tangible assets including infrastructure, commodities and real estate.
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Institutional asset management
This category is in charge of providing investing services to sovereign wealth funds, pension funds and other sizable institutional clients.
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Private asset management
This mainly deals with providing high-net-worth individuals and families investment services, with a particular emphasis on personalised and customised investment plans.
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Alternative asset management
This category concentrates on less liquid or more advanced investments, such as venture capital, hedge funds, and private equity, with the goal of generating greater returns.
Functions of asset management
A number of experts, such as investment managers, financial analysts, risk managers and compliance officers, carry out asset management tasks. The type of assets being managed and the objectives of the company will determine the specific responsibilities performed by these experts. The primary functions of asset management are as follows:
Investment strategy: Development of an investment strategy is the process of formulating a detailed plan that specifies the organization’s aims and objectives as well as the resources required to accomplish them.
Portfolio building: This entails selecting and acquiring assets in accordance with the organization’s investment plan.
Reporting and communication: This includes providing information to stakeholders and preparing periodic reports on the performance of the portfolio’s assets.
Regulatory compliance: This aims to make sure that the organisation complies with all applicable laws, rules, and guidelines when it comes to asset management.
Cost control: This aims to make sure that the expenses related to asset management are kept under control and as low as possible.
Performance evaluation: This entails developing methods to enhance performance as well as routinely assessing the performance of the portfolio’s assets.
Risk management: It is the process of determining, evaluating and controlling the risks related to the portfolio’s assets.
Monitoring and managing the portfolio: To ensure that the assets are operating as planned and according to the organization’s investment strategy, continuous portfolio monitoring and management are required.
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Benefits of asset management
Here are some of the benefits:
Optimize resources: By making the best use of your resources, you can avoid making unnecessary purchases and retire assets before their scheduled expiration date. In the end, you can avoid losing money on investments that aren’t adding value to your company and prevent having to make unexpected maintenance or acquisitions.
Forecast with precision: Asset management, like any strategic effort, can help you in making future plans. It includes projecting a company’s future asset inventory in addition to managing its existing asset inventory.
Ensure compliance: In several sectors, such as government, healthcare and finance, compliance is essential to day-to-day operations. Penalties, fines, and even greater repercussions like workplace accidents or security breaches may arise from noncompliance. Asset managers monitor all of these data and more, enabling businesses to prioritise compliance, lower risk, and manage legal issues that arise.
Prevent loss: One of the most significant facets of asset management is to maintain track of assets and their movements across an organization. Tracking minimizes the possibility of theft and loss, especially for smaller, more portable assets like computer equipment and retail items. However, it may also be used for bigger assets like machinery or cars.
Enhance the lifespan of every asset: Every asset needs to be properly maintained and looked after, whether it be a computer, a building or an automobile. Even software needs regular upgrades to function effectively. The goal of asset management is to maximize value through the maintenance, repair and handling of each asset to extend its shelf life as much as feasible.
Difference between asset management and wealth management
A financial institution that manages assets on behalf of corporations, sovereign wealth funds, pension funds, institutions and other big entities is known as an asset manager. The asset manager refers to these customers as institutional asset managers, and these clients are frequently referred to as institutional investors. Financial assets such as mutual funds, exchange-traded funds (ETFs), individual stocks and bonds, hedge funds, private equity, and more are invested with client funds.
When a client is an individual or family, wealth management is essentially asset management. All of this is in addition to understanding the entire balance sheet, cash flows, goals, budgets, and other specific aspects of an individual or family’s financial situation. This might involve contracts for work, money stored in trust or through holding companies, the requirement for insurance, and charity contributions.
Wealth management companies also provide clients with private banking services, which provide them with personalised one-on-one advice on retail banking goods and services including loans and mortgages. In general, wealth management is a service that aims to assist a client with all aspects of their financial life, including assets and obligations, financial planning, charitable giving, and creating legacy investments for their loved ones.
Bottom line
Asset management services, which generally entail the purchase, sale and handling of assets on behalf of clients, are provided by asset management companies. Types of asset managers are numerous. Some are employed by large banks and institutional investors, while others work for family offices and rich people. The efficient handling of investment portfolios on behalf of clients is the responsibility of asset managers. This an essential component of the financial services sector. Due to the wide range of tools and technology available to them, these managers are well-positioned to continue offering clients beneficial services in the years to come.
Frequently Asked Questions (FAQs)
What does asset management aim to achieve?
It is the process of purchasing, managing and selling investments in order to raise an individual’s net worth by a gradual growth in their value. It comprises maximizing the long-term return on an investment portfolio while keeping risk levels manageable.
Who uses asset management?
An asset management company may have as customers the general public, major nonprofit organizations, publicly listed companies (including startups), and even the general public. In the same way, companies offering asset management services could include anything from local businesses to multinational corporations.
What are the key principles of asset management?
Asset management is founded on a number of fundamental concepts. If an organization’s top leadership fails to strictly adhere to each of these key principles, the value of its assets is jeopardized. The application of the governing principles to an organization’s asset managing systems and activities should yield measurable results. The four pillars of asset managing are defined by the following governing principles: learning organization, output emphasis, capabilities, and level assurance.
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