Asset management firms direct their clients’ investment capital, putting it to work in a variety of investment types, including bonds, stocks, private equity, and real estate, for example. While the services are technically available to anyone, the high minimums required mean that only those clients with a high net worth are eligible for many asset management companies. In most cases, wealthy investors hire firms to work through variables, such as how much risk the client is willing to take and where the client’s preferences lie. Why don’t financially savvy investors manage their own portfolios?
Improved Efficiency and Returns
Many investments are made on behalf of companies and other organizations with a lot of assets and financial diversity. During the day-to-day running of the company, business leaders may find that it’s more efficient to have professional asset managers oversee and organize investments. With a dedicated individual or firm working on tracking assets, the likelihood of seeing better returns is improved. All decisions regarding how assets are used and where they are placed are monitored by professionals with the appropriate training and experience.
Organization and Management
Naturally, a business’ financial managers want to maintain efficient operations. Proper asset management ensures that assets are organized and used in the most effective ways. Asset managers, for example, assess the costs of management to keep investment fees as low as possible while maintaining as substantial a percentage of shared profits as possible. This often includes the management of assets from a variety of locations. At this point, a single point of management improves the accuracy of reports and other financial statements.
Appropriate Balance of Maintenance
As with just about every other aspect of running a business or home, it is necessary to perform maintenance on investment portfolios. When an asset is in the operation phase of its lifetime, the right balance of maintenance is necessary. Too much maintenance or too little can reduce the overall profitability of the investment assets. For example, if assets are sold, but the records aren’t updated to reflect that sale, continued time and effort will be spent on the nonexistent asset.
Accuracy of Records
When records are inaccurate or aren’t updated appropriately, ghost assets may develop. These are items that can’t be tracked down or that have been stolen. In most cases, ghost assets result from items that weren’t recorded accurately. Without consistent maintenance, it’s easy for vulnerabilities and discrepancies to develop within portfolio documents. With the oversight and attention of asset managers, the number of thefts can be kept low. Accurate accounting makes sure that items aren’t lost, while the investor continues to enjoy maximized returns.
Improved Risk Management
Risk management plans are necessary for the health of any investment portfolio. This plan should include the risks that are naturally connected to the ownership and use of assets. It also involves assessing and identifying potential risks, then developing potential solutions to avoid those risks. These plans may be part of the maintenance tasks carried out by asset managers or may be completed separately.
Attention to and Adjustment of Amortization Rates
Asset management professionals are skilled at monitoring amortization rates. In most financial settings, amortization refers to paying off debts in equal installments, part of the payment being directing toward the loan principal and part of it going toward interest. Depending on the type of loan, the ratio between principal and interest may fluctuate. Investment amortization is slightly different and involves fixed-income investments that are acquired at a discount or premium rate. In other words, the market’s interest rate is different from the investment coupon rate. Professional assessments of the assets are necessary to ensure accurate financial statements.
Long-Term Portfolio Care
In many cases, asset management firms work with clients for several generations. Clients with a high net worth may pass investments from one generation to the next, and the consistent management of those assets by trustworthy firms can lead to a mutual bond of loyalty. In many cases, the management firm puts together unique investment portfolios that are customized in very specific ways.
In some situations, banks operate as asset management companies. For example, Richard Isava, the executive director of Guyana Bank for Trade and Industry, has experience in asset management in addition to other banking and finance skills. His bank may offer all-in-one accounts where average investors can deposit their money and earn interest on the balance that remains in the bank. The fees and minimums associated with these accounts are low enough that many people can take advantage of the asset management service.
Comprehensive Portfolio Care
While asset management is generally a service offered to high-end clients, it is sometimes available to average investors. In either case, it’s important to hire an asset manager to keep the assets and related records organized and accurate. Managers monitor the preferences of the clients and the ups and downs of the investments. These professionals work to keep losses low and returns high. Without proper oversight and care, investment assets may not provide the results desired by clients.