Asset management is the process of deciding where best to invest money. Asset management firms are entrusted with clients' money and invest it long-term. By investing in assets and markets growing in value, the firms hope to maximise their clients' returns on their money.
How do they operate?
Asset management firms usually arrange their investments into distinct funds that are invested according to particular criteria. For example, a fund might invest in a mixture of bonds and equity (see glossary for definitions) from all around the world, or a much more strictly-defined set of assets.
Funds can be actively managed, where qualified fund managers use their judgement and experience to generate a good return, or passively managed by elaborate computer systems. Though managers tend to gravitate towards assets with the best returns, it is vitally important to reduce risk by maintaining a balanced portfolio.
Who are the clients?
Anybody with large amounts of capital in reserve could use asset management services. In practice, the industry's clients are usually means insurance companies, retail banks and pension funds, all of which hold large deposits from people who use their services.
How do the firms make money?
Unlike investment banks, asset management firms don't invest their own money. They earn money through levying fees on their clients, usually a proportion of the total money invested.
Why should I be interested in it?
Asset management weathered the financial crisis well, and has been growing ever since. This means jobs for graduates are up for grabs. Because the investments are long-term, and the firms tend to steer clear from the complicated financial products that caused the crisis, asset management is seen as a stable way of making money.
This firm, based in Edinburgh, is owned by a partnership of 37 senior executives who run the company. As well as its UK base, the company has a significant number of clients worldwide, including five of the seven largest US pension funds.
This New York-based company is the world's largest asset manager, and the biggest UK player by a significant margin, managing over three trillion dollars of assets.
This company is owned by insurance giant Prudential, but runs as an autonomous business. M&G has a significant presence in the UK asset management landscape, and runs the two largest funds in the country.
A tradeable piece of corporate debt.
Those who buy into investments, such as asset management firms and other kinds of asset management firms such as hedge funds and private equity funds. See also sell-side.
A share, that is, a slice of the ownership rights in a company.
A general term for tradeable corporate debt products, particularly bonds. The name comes from the fact that debt products, unlike equity products, provide investors with a regular income from interest payments.
An investment vehicle made up of money from various investors.
Those who market investments to asset management firms, usually sales people at investment banks or brokerage firms. See also buy-side.
Trending issues in asset management
Banks on the rise
As asset management is less risky than traditional investment bank trading activities, lots of banks have been expanding their presence in the industry while slashing their core investment banking operations.
Traditionally asset management has been more about equity - shares in companies - than debt products such as corporate and government bonds. However, in the wake of the financial crisis, clients have started to prefer bonds to equity, as they provide more reliable, if smaller, returns than risky shares. However, some managers believe that, because equities are currently less in demand and therefore cheap, the trend is in the process of reversing, as investors realise they can scoop up shares at bargain prices.
The asset management industry is no exception when it comes to the landscape of increased regulation in the financial sector, and firms now need to spend more time and effort than ever before making sure they're compliant with the latest rules. Fund managers also now have to be much more ready to explain their decisions to clients, with up-to-date information ready to back them up.
Did you know...?
Six of the top ten asset management companies in the world are American-owned. They are: BlackRock, The Vanguard Group, State Street Global Advisors, PIMCO, Fidelity Investments and JP Morgan Asset Management.