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What Is Asset Management? Definition, Terms, and AM Examples

January 17, 2019

Asset management, in the financial services world, refers to the managed investment of cash and securities.

An asset refers to anything that can be controlled and used to either store value or produce more value. In the financial services industry specifically, the term “asset” refers to cash and other financial stores of value (stocks and securities).

There are other types of asset management, such as the management of manufacturing assets and physical products, but the term is most commonly used within the financial services industry. Accounting software helps corporations, governments and individuals deal with asset management properly and easily. 

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The management of cash and securities (the assets) is typically carried out by a financial services institution like an investment bank. Asset management includes investing in a wide range of financial products, many of which are not available to an individual investor. There are also significant investment minimums for a variety of financial products, which limit the type of investor to high net-worth individuals (HNWI), governments, corporations and financial services intermediaries.

How Asset Management Works

Why would anyone trust a third party, especially one that charges significant fees, to properly manage their assets? The value in investment services companies is twofold.

One, they take the burden of looking after your assets off you by carrying out all asset management-related activities. Because of this, they often have expert knowledge of the markets and lean on their experience to inform investment decisions. Two, they have access to financial products and investment offerings that may be closed to those outside the financial services circle.

There are multiple ways to invest financial assets, including stocks, real estate, bonds and private equity. All investment activity is driven by what’s called an investment mandate, which is an instruction to manage a certain asset pool in a specific way.

The investment mandate includes information on what risk parameters to stay within and what strategy to use. Investment mandates are formed by the goal of the investment activity and can differ from asset pool to asset pool. For example, if an investor wants $1 million kept safe for a purchase they’ll make later in the year, the investment mandate would be to play very conservatively in order to preserve the capital.

Types of Investment Mandates

There are multiple types of investment mandates, including long-term growth mandates, income investment mandates and speculation mandates, among others.

Long-term growth mandates direct asset managers to focus on healthy, sustainable growth that will net steady asset growth.

Income investment mandates are typically used by investors in their retirement years, or those who need to live off of investment income streams derived from their portfolios. Because this income is essential, asset managers given this mandate will look to emphasize passive income streams that are safe and steady, but not massive.

Speculation investment mandates are issued by risk-seekers. These directives allow fund managers to look for high-growth opportunities and take the plunge despite significant volatility or risk. The potential payoff is high, but so is the possibility of significant asset loss.

There are many other investment mandates out there — as many as there are investment opportunities.

Related: Software is the lifeblood of your business, so make sure you know the ins and outs of software asset management to reduce your spend.

Who Uses Asset Management Services?

There are four main users of asset management services. They are funds, corporations, HNWI and financial intermediaries. Each group is interested in asset management for the same reason: to make significant amounts of money by using the money available for investment. Asset management companies typically charge minimum annual fees (some in the range of $5,000 to $10,000; a select few in the range of $100,000 to $1 million) to weed out smaller investors who may end up costing them in trading and transaction fees.

But recently, asset management companies have created pooled asset structures like mutual funds, index funds and exchange-traded funds (ETFs). These are designed for set-it-and-forget-it investors with little in the way of assets (at least compared to the wealth these companies typically deal with). Index funds work by picking up groups of individual stocks and using the fund to hold them indirectly.

For example, an index fund tracks the S&P 500 (an index tracking market capitalization) as it is composed of stocks in the S&P 500. Index funds are a type of passive fund management and have historically outperformed the vast majority of actively managed funds. These funds have a lower barrier to entry because they require little management. Despite this, they are some of the highest-performing financial products.

What is an Asset Manager? 

An asset manager is, to put it simply, an individual who manages a specific group of assets. The goal of the asset manager is simple: increase the value of the assets through investment. The asset manager is responsible for developing an investment strategy, executing that strategy and, ultimately, making (or at least not losing) the assets with which he or she has been entrusted.

Asset managers employ researchers and analysts, who are responsible for tracking performance, digging up events, launching products, handling PR disasters and other tasks that could affect the performance of the market. Specifically, asset managers look to invest in high-growth opportunities before anyone else.

What Are Fixed Assets?

Fixed assets are tangible property or goods that cannot easily be converted into cash. Examples of fixed assets include manufacturing equipment, real estate, furniture and anything else that’s tangible. If you can touch it, it’s likely considered a fixed asset.

Fixed asset management is a different beast entirely, and one that’s covered in our piece on enterprise asset management. Basically, enterprise asset management software helps businesses with a ton of fixed assets properly manage those assets, reducing wear and tear, extending the life of said assets, and giving companies more oversight when it comes to their tangible assets. One of the issues with fixed assets is the fact that they depreciate. But their depreciation can be mitigated by taking proper care through the use of tools such as EAM software.

Find the best Enterprise Asset Management Software on the market. Explore Now,  Free →

Corporate finance departments deal with a different type of asset management than financial services institutions. They deal with both tangible (fixed) and intangible assets and are concerned with improving the efficiency of asset use in order to improve longevity and reduce costs.

The Future of Asset Management

In recent years, asset management has become more accessible to those with fewer resources. Digital transformation has opened up investment opportunities for non-HNWI. Investment products like mutual and index funds are easy to use and can deliver high performance. The future of asset management likely looks much more egalitarian, with technology putting power in the hands of investors and allowing them to bypass what has been a very restricted circle.

Ready to learn more about asset management? Check out the best financial services software in 2018 as rated by real users.

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