Asset management refers to the process of managing assets on the behalf of clients, with the goal of preserving and growing their value.
In this context, ‘assets’ can refer to financial instruments such as shares and bonds, or simply to cash.
For example, clients of an asset management firm will entrust it with some of their money. The firm’s responsibility is then to invest this money prudently, in line with its clients’ financial objectives. Asset managers have a fiduciary responsibility to act in the best interests of their clients, rather than prioritising making money themselves. In return for preserving and growing the value of their capital, the firm’s clients pay it a fee.
Investments can be made in different types of assets (or different ‘asset classes’), and many different investment philosophies and strategies exist.
Why is asset management important?
Asset management firms play a key role in the financial services industry through serving as middlemen, connecting parties that have capital (investors) with parties that need capital.
If this all seems a bit abstract, think of it like this:
- The client gives their money to the asset manager.
- The asset manager invests this money in assets that are issued by parties like corporations and governments.
- This allows these parties to buy equipment, hire employees and take other steps that enable them to ultimately grow in value.
Asset management is also an important topic as, in many cases, pensions now don’t pay enough to retire on. This means there’s greater pressure to make successful investments so that your profits can help support you in retirement. The largest and most influential institutional players in the asset management field today are pension firms.
P.S. The following video references ‘investment management’, which is a term interchangeable with ‘asset management’.
Asset vs. wealth management
Despite the similarity of their names, asset management and wealth management are not synonymous. Asset management specifically refers to the management of investments, whereas wealth management is a broader term.
Asset management: Purely managing an investor’s assets, with the goal of preserving and growing their value.
Wealth management: Taking a more comprehensive look at a client’s financial situation, including tax and estate planning, insurance and other factors.