Knowledge Series: What is Asset Management? And How Does Mutual Fund Structure Work in Asset Management?November 6, 2017
Asset management as the name suggests, is a process of managing funds, either for individuals or for companies. In asset management the investors capital is invested in diverse reserves like Bonds, Real Estate, Private Equity etc…, these asset management firms manage plenty of funds for either corporates or individual clients, within the lines of a particular mandate.
Asset management companies (AMC) could take care of these large funds either independently or by investing it in a fund run by them. Asset management companies run many funds which function with the objective of taking advantage of opportunities in a particular field or product or region, or in certain kind of company/industry, where they are sure about growth and expansion.
Asset management companies usually work with many investors and hence are able to diversify their client’s portfolios. This is a good thing as having a diverse pool of clients gives them greater value options, which in turn assures better capital appreciation opportunities, and thus mitigates the risks to an extent.
Financial firms differ from others in the sector, as they can be divided into two categories, the one on the ‘Buy’ side and the ones on the ‘Sell’ side.
An asset management companies’ objective is that they strive to build the clients portfolio by making wise investment/purchasing decisions, which on a whole will build the capital value for their clients. This is different from others in the sector like insurance, mergers and acquisitions and stock purchases.
One will find many asset management companies working with ‘High Net Worth’ individual’s, who give them Unlimited Discretionary power or fiduciary powers in decision making.
Along with individual wealthy clients, asset management companies also have many corporate clients that they manage, these would essentially be Insurance Companies, Retail Banks, Pension Funds, who invest a large pool of individual savings to them, entrusting them to make investment decisions, for overall profits.
Asset Management firms stay profitable by charging a fee for managing their corporate or private clients, this is their method of earning revenue as unlike investment banks, asset management firms do not trade for profit. Since asset management firms, manage funds of retail banks, and pension funds in some sense they help us protect our money, and in turn provide a vital flow of capital to us, and the economy on a whole.
Asset management Companies are considered as one of the layers in the Mutual Funds Structure.
In the mutual fund structure, the asset management firm acts as the fund manager or like an investment manager to the overall trust. They take the fee to manage the funds and conduct all related activities, like initiating and launching the scheme, besides managing the funds, an asset management firm is also responsible for providing services to the unitholders or the investors. For example, an asset manager will liaise with elements like the broker, banker, auditor,
An asset management company has an assembly of individuals who engage and manage the business on behalf of the new clients. Some specific titles would be, Financial Analyst, Economist, Asset Managers etc…, Asset management has a wider scope for business and offers great appeal and opportunity for fresh graduates and experienced candidates both.