Investment Management
The term "investment management" refers not only to the purchase/sale of securities. Investment management is considered to be a process of professional handling of various types of assets and investments in the interests of clients. Investment management implies the presence of a short-term or long-term strategy for the acquisition and sale of assets in the investor's portfolio. Different commissions and fees should be taken into account, for example, banking or tax.
Most often, trading and managing assets in an investment portfolio pursues the achievement of a specific goal of a specific investor. Money management, portfolio management and wealth management are other names of investment management.
Investment Management explained
Professional investment management assumes responsibility for the client's money, whether it is an individual investor or institutional investors, such as retirement funds or insurance firms. This activity is aimed at achieving clearly defined goals in the interests of their clients.
The investment management process consists of devising a suitable portfolio strategy and its realization, monitoring the current state of the market, selecting and allocating assets, executing trades and analyzing financial statements. In addition, sometimes advisory services that go beyond a specific investment portfolio, but are consistent with the client's life goals, are also included in the understanding of "investment management".
Investment managers handle a mix of various securities and assets, such as bonds, stocks, commodities, and real estate. Management of real assets, for example, precious metals or works of art, can also be carried out by the professional manager. If necessary, managers can distribute assets and prepare a retirement plan for the client. Regarding corporate finance, the main task of investment management is accounting and competent use of tangible and intangible assets of the organization.
Based on a study conducted annually by the research and consulting firm Willis Towers Watson in conjunction with the financial daily Pensions & Investments, the investment management sector is on the rise.
More about Investment Management business
Running an investment management company involves a number of activities, including hiring professional managers who are able to execute reasonable trades, implement an optimal marketing strategy, make the required calculations and prepare the necessary reports for their clients.
In addition to recruiting and training a team of professionals responsible for managing investment flows, company management must monitor compliance with regulations and laws and keep proper accounting of cash flows.
If an investment management company handles over $25 million in assets, it must be registered with the Securities and Exchange Commission (SEC) and take fiduciary responsibility to clients. Fiduciary responsibility refers to the fact that advisors act strictly in the interests of their clients, otherwise, criminal liability may arise. The investment management company is also required to be a registered investment advisor (RIA). In the event that an investment management company manages less than $25 million in assets, it must be registered only in the state of operation.
Professional managers of investment management companies receive a management fee as a percentage of the portfolio value held for a client. The management fee range is within 0.35% to 2% per annum. In addition to this, the manager's commissions can have a sliding scale, that is, the more assets the client has, the lower the commission amount. The average management fee is usually around 1%.
Benefits and drawbacks of Investment Management
There is no doubt that the investment management sector is profitable, however, it should be noted that there are also problems associated with running such a company. The revenues received by companies that manage investments directly depend on the behavior of the market. The presence of a direct relationship implies that the firm’s profit is affected by the market valuation. A significant decrease in asset prices could be a factor in the decrease of the company's revenue.
Advantages:
- expert analysis;
- round-the-clock diligence;
- outperforming the market;
- portfolio protection in hard times.
Disadvantages:
- significant fees;
- profit depends on market fluctuations.
Over the past 20 years, with the advancement of technology, two sources have influenced this industry. The first is the increasing number of robots-consultants, which are algorithms for various investment strategies and allocation of assets. The second is the availability of ETFs, whose portfolios reflect a benchmark index. Both tools can charge much lower commissions than human fund managers.
In the face of such competition, investment management companies are looking for talented professionals. For some clients, the results that an investment management company shows are important, while for others, the professional manager’s approaches and the ways of how they tackle problems and achieve goals in priority.
However, the most important criterion for the performance of an investment management company is not the amount of money earned in good times. The less money the company loses in bad times, the better business for this company itself, and even more so for customers who entrust their capital to them.
