Understanding How Asset Management Works

The simple definition of asset management is that it refers to the management of assets, securities, or investment portfolio of a client by an investment party which could either be another individual or a financial services institution.

Would you trust anybody to manage your money or investments on your behalf? This is what asset management is all about. The simple definition of asset management is that it refers to the management of assets, securities, or investment portfolio of a client by an investment party which could either be another individual or a financial services institution.

While asset management can be used in a diverse range of ways, it is principally used in the financial services industry and it is carried out by a financial services institution like an investment bank. Asset management could take two forms:

The first would be advisory in that the financial services company or advisor coordinates the financial portfolio of a client. This could cover investments, but it could also deal with budgets and accounting records and the goal is to ensure that the investor has all he or she needs to make the most gains.

However, in corporate finance, the funds of a company, government parasternal or big client, is handed over to the investment firms who maintain it and optimize the gains on the investment.

The process thus covers both ensuring that the client’s assets or securities increase in value over time.

It also involves putting the right strategies in place to mitigate risk. There are also minimum investment amounts that are only available to high network individuals who can afford it.

There are a number of advantages that come with asset management. For one, based on the detail and complexity of the work they carry out, you already know that they are experts in the field. They have long years of experience and the required level of knowledge to be able to make the best decisions.

There are also times that they are privy to certain information that others may not know. The goal remains to make gains on the investment for the client. Asset management companies themselves earn their money by charging fees.

They make use of capital provided by investors and spread it across a number of investments covering real estate, stocks, private equity, bonds, and so on.

To determine exactly what the investors want, they make use of an investment mandate. Put loosely, an investment mandate is the instruction or guide given to the asset managers on how best to invest the investors’ funds based on their specific objectives.

From their interest in the kind of investment, to the risk involved and the cost elements, this mandate is how the investors and the asset managers meet halfway. In our next post, we would breakdown what investment mandate means and the different kinds of investment mandates there are.

Written by Lawretta Egba.