John Hustaix is an in-house lawyer with more than a decade of private practice asset management experience. This article will explore the topic of asset management in more detail and how it is used to provide a framework for the day-to-day running of wealth portfolios.
Pooling assets by creating an investment portfolio allows investors to access these assets with limited expertise requirements. This is achieved by identifying opportunities, assessing risks and developing overarching strategies to achieve the client’s specified financial objectives.
Asset managers usually organise the pooling of assets with common features into packaged products that can be easily identified by investors. As such, asset managers will create funds into which investors’ capital is collected and then use the collected capital to acquire multiple assets to which investors will have a pro rata exposure. This allows investors to (i) access assets that they would not normally invest into themselves or directly, (ii) diversify their exposure to multiple assets having common financial features and (iii) reduce the costs of managing these assets.
Once the investment portfolio has been established, the asset manager will be responsible for monitoring individual investments and tracking overall performance, managing investments and financial products that form part of the portfolio. This may include selling funds when the time is right or purchasing more assets based on market research.
Asset management companies manage funds on behalf of both corporate and individual clients. They make timely investment decisions with the ultimate goal of growing their clients’ portfolios and wealth.
Asset management is one fell swoop that involves increasing the value of portfolios while simultaneously mitigating risk. The client’s risk tolerance is a critical factor in investment decisions that can vary hugely from one investor to the next. For example, a young individual may have longer-term objectives that require limiting short-term liquidity to increase risks by either leveraging or buying illiquid investments, thus creating scope for greater yields, while a retiree living on the income from their portfolio is unlikely to benefit from longer-term returns and thus will likely be much more risk averse.
It is the role of the asset manager to propose pooled investments that are most appropriate for the client, aligning with both their risk tolerance and long-term financial goals. Investments may include stocks, commodities, real estate, bonds, mutual funds and alternative investments.
Effective asset management calls for extensive research using both micro and macro analytical tools. This includes reviews of corporate financial documents, statistical market trends analysis and anything else that can help to achieve asset appreciation. Essentially, asset management involves buying, holding and selling funds, stocks, bonds and other investments and financial products for the benefit of several investors treated equally.