10:18 pm - Monday December 18, 2017

ABCD of Asset Management

Asset management is all about managing money through investment, budgeting, banking and taxes. In an ideal set up, the money is never allowed to sit idle and is made to work in the best possible manner by lending and investing in many different asset classes and in many different ways with the sole aim of maximizing returns with best liquidity options with nil or least risk.

Asset Managers are the people responsible to ensure this. They are also called fund managers, portfolio managers or money managers.

A good number of asset classes can be included in the said portfolio including cash, equities, bonds, property, precious metals, art, etc. Within these categories, the assets can be further subdivided into

  • Domestic and foreign,
  • Large and small and
  • Actual asset class and the derivatives.

Thus this industry is truly international, dynamic and complex with the investors and the opportunities for investment throughout the world.

The main aim in asset management is to construct a portfolio for the investor. This process has five main steps for the investor and manager.

  • Determining how much money the investor needs and by when
  • Agreeing on the minimum rate of return on the portfolio to achieve its aims.
  • Specifying an optimum asset allocation that will hopefully bring in the desired amount of money with the least possible risk.
  • Selecting the investments.
  • Checking the assets’ performance regularly to ensure that the portfolio is on track to reach its objectives.

The way in which a portfolio is designed depends of various factors.

The major investors or clients who prefer to invest in asset management services include

  • High net worth individuals
  • Charities
  • insurance companies
  • investment trusts
  • pension funds
  • Mutual funds
  • Unit trusts and
  • Open-Ended Investment Companies (OEICs).

Some of the benefits an investor can enjoy are:

  • One can pool his/her money to cut down on dealing and administrative costs
  • One can spread his/her risk by building up a diversified portfolio
  • One can benefit from someone’s expertise as the asset management service providers engage highly successful and experienced professional managers to handles the investment  portfolio
  • One can invest small amounts too to build up a portfolio

Asset management is often referred to as the ‘buy side’ because it buys investment products with the aim of making profit for investors. ‘Sell side’ is often used as a catch-all term for other institutions that trade or sell securities– the sell side profits from the commission it makes on the price of the securities it sells.

The difference between the buy side and the sell side can be confusing, because investment banks that carry out sell-side activities may also manage money for their clients – but these buy-side parts of an investment bank are kept completely separate from the sell side in order to prevent abuse. This information barrier prevents potential conflicts of interest.

A very important step in asset management process is asset allocation. Once a decision has been made on which asset categories to include in a portfolio, the next step is to decide how much to invest in each and what kind of investment approach the client is willing to take.

Thus, asset allocation is one of the most important aspects of asset management, as it determines whether or not an investment will achieve the minimum rate of return and thereby achieve the financial objectives. The skill in this area lies in the ability to balance risk and reward throughout the different asset categories in the portfolio.

In investing, there are four main risks – asset, asset class, asset allocation and leverage – that significantly reduce the efficiency with which portfolios generate returns. The risks can be addressed separately, but each acts to limit the power of diversification. Change any one of these and one will significantly improve portfolio’s ability to deliver its potential.

As a career asset management offers opening as Asset Managers, Analysts, Sales and Marketing Professionals, IT and Technology Specialists and Operations Professionals.

Asset Manager is also called as Fund Manager. S/he actually manages investment portfolios. Analyst makes research on stocks and makes buy or sell recommendations. Sales and Marketing Professionals attract potential clients to invest their money with their companies. IT and Technology Specialists develop complex systems to support the business and offer technical advice. Operations professionals ensure smooth running of the business by administering processes and systems.

Asset management is a very dynamic and complex industry, suited to individuals who are looking for a career with responsibility and visibility. It is an industry that offers an intellectual challenge and excellent career prospects. It is a great industry in which one can achieve professional recognition.

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