Asset Management – What Is It And Why Do You Need It?
More than €85 trillion is managed by asset managers worldwide. The biggest market is the USA with a share of about 60% followed by Europe with over 30% and the balance share is held by Asia. Nonetheless, Asia’s growth rate of around 24% over the past 5 years is twice that of the USA and Europe, at 10% per annum. The potential for the Asian market is huge and it is growing stronger by the year. The asset management industry is characterized by a strong global market concentration. While more than 4,200 companies operate in this sector in Europe alone, the 400 largest companies worldwide hold more than 80% of all assets under management. So what does this mean? There is no better time to tap into the rewards that asset management firms can offer.
What is asset management?
Asset management is a broad term used to refer to planning, directing and maintenance of assets which can be tangible or intangible. What these assets depend on the type of asset management.
There are 7 types of asset management. Here is a quick run-down of each:
Financial Asset Management
Often simply referred to as “asset management”, it is part of the financial services industry which manages investment funds and the investment accounts of the asset management firm’s clients.
Enterprise Asset Management
This type refers to the management of an organization’s fixed assets, sometimes expanded to include intangible assets.
Infrastructure Asset Management
Specifically, this refers to public infrastructure such as electric grids, waterways, roads and bridges.
Public Asset Management
It covers a greater scope of public infrastructure, extended to facilities such as schools, parks, public spaces and airports.
IT Asset Management
As the name suggests, it encapsulates the governance and control of IT hardware and software.
Fixed Assets Management
This is the practice of tracking fixed assets only for the purposes of financial accounting, maintenance and prevention of losses.
Digital Asset Management
It deals with collections of information belonging to an organisation or which the organisation has the right to use.
The context of this article is in the purview of financial asset management.
What does an asset management firm do?
The firm professionally manages the financial portfolio of its clients. Such firms typically have investment minimums, so their clientele is usually institutions, individuals or families of high net worth.
Empowered to invest on behalf of its clients, an asset management firm’s ultimate goal is to multiply and maximise financial returns for clients while helping them mitigate risks.
It also offers investment services along with a wide range of traditional and alternative product offerings that might not be available to the average investor.
Among the non-exhaustive list are:
- Mutual funds
- Private investment funds
- Insights and ideas from research on equity, fixed income, currency, commodity markets, economics, portfolio strategy, derivatives and credit issues
- Stocks, bonds, convertibles, alternative assets (such as hedge funds, private equity funds and real estate), commodities, indexes of each of these asset classes and money market investments
- Investment opportunities include government financing through sovereign bonds, private sector financing through equity or bond purchases, and financing infrastructure needs
Asset managers in an asset management firm will conduct research, interviews, as well as statistical analyses of companies, markets and trends, in order to determine what investments to make or avoid on behalf of their clients.
When should one consider asset management?
If you have at least a total of 2-digit million dollar assets, it may be time to benefit from the services of an asset management firm. As the saying goes: let your money work for you, not the other way round.
Why should your business be concerned about asset management?
Most professionals and wealthy people do not have specialized knowledge of the capital markets. By engaging an asset investment firm, you or your organisation can benefit from full-time professional money management.
Asset investment firms are armed with specialist know-how of the whole repertoire of investment tools which an individual or institution can avail of. They may also have an insider or first-hand information of certain stocks or upcoming market trends.
Such services and intel are only privy to clients of an asset investment firm. Being in the know will help your business have a strong foothold in terms of financial gains and security.
Benefits of engaging an asset management firm
Asset management firms have access to thousands of different securities and have the knowledge to make appropriate choices for their clients. They are able to diversify on behalf of their clients.
Diversification means spreading out investment risk by investing in many different securities, rather than concentrating investments in one or two. A diversified portfolio is generally less volatile than a concentrated one.
2. Round the clock monitoring
On-going monitoring is an important service of asset management firms. They keep track of all their clients’ accounts throughout every business day. This is vital in today’s volatile global economy.
3. Personalised financial plans for an uncertain market
In the current uncertain market, investors want answers to help them grow and protect their funds. Asset management firms are able to offer a financial plan built to withstand a variety of market and economic conditions.
4. Risk management
The professionals in asset management firms are trained to identify risks in various investment products as well as risks posed by changing market trends.
5. Power of pooled capital
A pooled capital consists of a gathering of funds from several clients. This allows clients to benefit from economies of scale.
A larger pool of funds can make new investment opportunities that were not initially available to them as an individual investor. For example, collectively they are able to purchase more shares than they can as an individual investor with less amount of money.
This pooled capital in a single account also enables investors to create a diverse portfolio. A diverse portfolio allows investors to reap the benefits from different sources of investment.
What are strategic asset management plans and how are they developed?
Wealthy investors – be it individuals or institutions – must first open an account with an asset management firm. They then deposit cash into the account, in some cases with a third-party custodian, and the portfolio managers take care of the portfolio using a limited power of attorney.
Asset or portfolio managers will work closely with their clients (investors). These managers take into account the client’s unique circumstances, risks and preferences in forming a plan that will benefit the client the most.
This plan is fully customised to also suit the client’s income needs, tax circumstances, and liquidity expectations. Asset or portfolio managers can even base decisions on the client’s moral and ethical values as well as personality.
High-end firms may cater to a client’s every whim, offering a bespoke experience. It is not uncommon for the relationship between investors and asset management firms to span generations as managed assets are transferred to heirs.
An asset management plan is basically an optimal map for how the investor or client’s assets will be managed. For example, in which investment products or mediums, for what duration, in which business, in what country, and so on.
Once this plan is agreed upon by the client, it is executed and monitored by the firm.
What are the common asset management services in Singapore?
Some firms only cater to wealthy clients through private accounts known as individually managed accounts, or with hedge funds. Some firms combine service offerings for both wealthy clients and investors with more average-sized portfolios.
Each asset management firm has its area of specialization.
Some are generalists. These are usually large companies that design financial services or products they think investors will want and need.
Some firms have a narrow focus, concentrating on one or a handful of areas, such as working with fellow long-term investors who believe in a value investing or passive investing approach.
Others focus exclusively on launching mutual funds while some build their practice around managing money for institutions or retirement plans, such as corporate pension plans.
Finally, there are those that provide services to specific firms, such as managing assets for a property and casualty insurance company.
Conclusion: Asset management suitable for Singaporeans?
There were about 269,000 millionaires Singaporeans in 2019 out of a 5.8 million population. This is a staggering 4.6%.
The number of millionaires is projected to increase to around 363,000 in 2024. This estimated growth in the millionaire population reflects the trend of increasing household wealth in Singapore, which grew by more than 146 per cent since 2000.
So, to answer the question of whether asset management is suitable for Singaporeans, the statistics mentioned above illustrate that a great number of Singaporeans are definitely qualified to consider the services of an asset management firm.
That, coupled with the country’s generous laws which encourage foreign exchange and allow more fluid financial transactions across borders, constitutes a golden formula for multiplying wealth.
Singapore is touted as one of the most attractive markets to invest in among investors and financiers around the world. It is no surprise that Singapore attracts high-net-worth migrants and has retained its position as the world’s fourth best financial hub.
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