Careers in Finance: Asset Management

ASSET MANAGEMENT OVERVIEW

“What would you do if someone gave you $1,000,000?” Most people have always hated these sorts of question because of the unnecessary pressure that accompanies them. The pressure to give the perfect response on how to manage a sum of money that does not even exist. Most choose investment as their default response — right after a hot meal and chilled drink of course. However, most people do not possess sufficient know-how required for investing which is a major challenge. For a solution, the universe presented us with Asset management and managers.

Asset management is simply the business of managing money for persons who may not know how to manage such money, or would rather not bear the risk of managing such funds. Asset managers are in the business of using money to make more money.

It is managing and investing large sums of monies on behalf of a client in order to make positive returns in the long run. Asset managers study the financial markets cum their client structure and background based on which they build investment portfolio across a broad range of asset classes. Asset management clients are large institutions with large sums of monies e.g. Pension funds. Pension funds, for one, are investment pools prepared against employees’ retirements. Funds are paid for by either employees, employers, or both. Corporations and all levels of government provide pensions which are managed by Asset managers who are knowledgeable of the ups and downs of the financial markets. These funds could be managed by in-house Asset managers or the risks could be outsourced to Asset Management firms.

Other Asset management clients include: insurance companies, sovereign wealth funds and even charities. These pooled funds can be channeled into real-estate, stocks, bonds or other assets depending on the financial objectives of their clients. For example, the stock market can deliver fast returns, whereas property is ideal for long-term asset management.

ROLES WITHIN ASSET MANAGEMENT

Asset management firms are made up of several key performers in both their front and back offices that enables the business to attract and effectively manage assets of clients.

1. Support — These individuals play an integral role within asset management firms and are responsible for day to day running of the firm. They form the Compliance, Human Resources, Legal team, Finance etc. all of whom are considered back office staff as opposed to client facing.

2. Distribution Channel — Keeping a watchful eye on the current market situation and outlook is essential for asset management companies. The job description includes: sales, marketing and events. They source for clients and make pitches.

3. Investment Channel — These are portfolio managers, traders, managers and research analysts. They research investment options, conduct due diligence on potential opportunities and determine when best to buy and sell assets.

ASSET CLASSES

After sourcing for clients and security their monies, how do Asset managers manage or invest these funds? This question introduces us to the various classes of assets. Asset classes are akin to ice-cream. Every ice-cream is recipe is milk, sugar and cream before getting varied by differing flavors. This applies to asset classes as well. In finance, an asset class is a group of financial instruments which having identical financial traits and behave similarly in the market. They include:

1. Fixed Income — Fixed income is investment security that pay investors fixed interest or dividend payments until its maturity date. At maturity, investors are repaid the principal amount they had invested.

2. Equity — Otherwise known as Stock, Equity is the value of the unit of ownership issued by a company. It represents a shareholders’ stake in a company, identified on a company’s balance sheet. The calculation of equity is a company’s total assets minus its total liabilities.

3. Alternatives — An alternative investment is a financial asset that does not fall into one of the conventional categories. Private equity or venture capital, hedge funds, real property, commodities, and tangible assets are all examples of alternative investments.

4. Multi-asset Investopedia defines multi-asset class, also known as a multiple-asset class or multi-asset fund, is a combination of asset classes (such as cash, equity or bonds) used as an investment. A multi-asset class investment contains more than one asset class, thus creating a group or portfolio of assets.

By Samaila Mok, for THE FINANCE HUB