The Instruments

Investment funds, Discretionary mandates, and Asset allocation are all important aspects of the asset management industry. Let’s take a closer look at each of these topics:

Investment Funds (IF):

  • Regulated funds that pool together the savings of investors with similar investment goals, usually retail investors.
  • Each fund has its own investment objectives, risk levels, and asset allocation.
  • Investors can easily buy or redeem shares of these funds.
  • Advantages of investment funds include risk diversification, risk-adjusted returns, and investor protection.

Discretionary Mandates:

  • Explicit investment mandates delegated to an asset manager by a specific investor, usually institutional.
  • The asset manager buys and sells assets and executes transactions on behalf of the investor.
  • The investment strategy, risk profile, and asset allocation are agreed upon beforehand with the client.
  • Advantages of discretionary mandates include tailor-made investment solutions that align with the precise investment goals of each investor.

Asset Allocation:

  • Investment funds have become increasingly popular due to being cheaper, easier to access and exit, and having a higher share of equity allocation.
  • Asset allocations by retail investors are mainly in insurance and pensions, currency and deposit, with only 8% in funds.
  • Future trends in asset allocation may include a shift towards sustainable investing and a greater focus on alternative investments.

Further reading and recent trends:

EFAMA’s asset management report highlights heavy ESG focus

HSBC launches digital discretionary portfolio management

Discretionary Investment Management Definition, Benefits & Risks