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Asset Management: An In-Depth Guide
In this article, we’re going to dive into the world of asset management. Asset management is the practice of managing money, investments or capital on behalf of others. It’s a multi-billion-dollar industry that’s essential for individuals, institutions, and governments to grow and preserve their wealth.
What is Asset Management?
Asset management refers to the management of investments or money or capital on behalf of others. This means that an asset management firm will take money from its clients and investors and invest it into different parts of the financial markets, according to the risk appetite and investment goals of the client. Clients of asset management firms include governments, local authorities, pension funds, insurance companies, and sovereign wealth funds. However, if an organization is managing money for wealthy individuals or family offices, that’s considered private banking or private wealth management.
Types of Asset Management Firms
There are two main types of asset management firms: pure play asset managers and firms tied to investment banks. Pure play asset managers, such as BlackRock, Pimco, Fidelity, and Vanguard, are asset management firms only.
On the other hand, firms like Goldman Sachs Asset Management, JP Morgan Asset Management, Bank of America Merrill Lynch Asset Management are not asset management firms on their own, but instead, they are owned subsidiaries of an investment bank.
Roles Within Asset Management
Asset management is a complex field, with various roles and responsibilities. There are three key types of roles in asset management: sales, product or investment, and support functions.
- Sales People or Distribution: The salespeople or distribution team is responsible for managing relationships with clients and bringing in new business.
- Product or Investment Specialists: The investment and product specialists are the individuals who invest the money into the financial markets. This includes portfolio managers, traders, and researchers who specialize in a specific asset class. An asset class refers to the different types of financial markets that you can invest in, such as stocks, bonds, real estate, commodities, etc.
- Support Functions: The support functions include HR, finance, operations, and other areas that are necessary to allow the salespeople and the product people to do their jobs to the best of their ability.
Asset Management vs. Sales and Trading
The main difference between asset management and a typical sales and trading floor is the time horizon of the investments. In sales and trading, the focus is on short-term investments, such as a week, a month, or three months. In contrast, asset management is focused on long-term investments, with a view on the market that extends six months, one year, two years, or even five years or more.
Why is Asset Management Important?
Asset management is important because as time goes on and inflation goes up, the money loses value. It’s important to invest large sums of money, such as hundreds of millions and billions of pounds, in the financial markets to preserve or grow their value over time. Asset managers help keep the value of these large sums of money or hopefully grow it over the long term, 10, 15, 20 years or more.
In conclusion, asset management is a critical field that plays a crucial role in preserving and growing the wealth of individuals, institutions, and governments. With a wide range of investment options and a focus on long-term investments, asset management firms can help clients achieve their financial goals. If you’re interested in learning more about investment banking or private equity, be sure to check out our other videos. That’s it for this week’s two-minute Tuesday, tune in next week to learn another financial concept,