Asset management is the process of deploying assets into different investment vehicles in a bid to gain a return. Asset managers must take into account asset allocation, diversification, inflation, volatility, interest rates and a host of other factors to ensure they properly manage funds.
How does Asset management work?
Investment portfolios are built taking into account factors such as the investors goals, funds available, including the client's unique circumstances, risk appetite, and preferences.
Portfolio managers select positions customized for the client's income needs, tax circumstances, liquidity expectations, moral and ethical values, and personal psychological profiles.
These factors then influence how the asset manager utilizes the investors funds, how much risk they take and how much value they intend to gain. Asset managers usually charge a fee to manage your assets. This fee is usually a percentage of the assets under management.
Asset management can be done by anyone, even you. Asset managers on the other hand are typically expensive and require a high minimum investment such as £100,000 which makes their services less inclusive. Robo advisors on the other hand have low minimum investment requirements and undertake the same work as asset managers.
Some asset managers are so well known e.g Vanguard that other investors simply buy into their portfolios e.g the Vanguard S&P fund
Each asset management firm has its area of specialization. Some are generalists, usually large companies that design financial services or products they think investors will snap up in the marketplace. Some firms have a narrow focus, concentrating on one or a handful of areas such as working with fellow long-term investors who believe in a value investing or passive investing approach.
Some firms only cater to wealthy clients through private accounts, known as individually managed accounts, or hedge funds. Some focus exclusively on launching mutual funds, and some build their practice around managing money for institutions or retirement plans, such as corporate pension plans.
Finally, some asset management companies provide their services to specific firms, such as managing assets for a property and casualty insurance company.