Asset Management Explained
Learn all about the asset management industry. From different types of asset classes to potential careers and companies in the sector.
This article will provide you with a comprehensive breakdown of the asset management industry. It’ll go through a definition of asset management, also known as investment management, then cover the different asset classes, the careers in asset management and finally the types of companies in asset management in case you want to apply to some.
Video Breakdown: What is Asset Management
Asset Management Defined
As a basic definition, asset management is just managing client’s money with the goal of growing that money, so generating returns, whilst mitigating risk. As for how the asset management company gets compensated, it’s usually a fixed fee for managing the money, so a percentage% of the total assets under management. Some funds may also charge clients a variable fee dependent on performance, which they only charge if they hit their goals.
Who Are the Clients?
It’s large institutions and high net worth individuals. Some examples of institutions are insurance companies, pensions funds, or sovereign funds. All 3 of these institutions have a lot of money at their disposal, so they need to somehow invest those funds. This is typical done through an asset manager.
To illustrate this, let’s suppose you have a car, and every month you pay insurance for that car in case you crash. The insurance company will be receiving this cash every month, and it wants to grow it so that if you ever end up crashing, they can pay for the damage. That’s why they need asset managers to get good returns on their investments.
The other types of clients are high net worth individuals, and these are extremely wealthy people with a net worth of well above the $10 million mark, who are only given access to these services because they are so wealthy. As for the difference between asset management and wealth management? Frankly, they’re both quite similar, but wealth management also focuses on other aspects of wealthy individuals’ financial situations like mortgages, retirement plans, taxes, and so on while asset management focuses exclusively on growing your money.
Types of Asset Classes
Once an asset management firm has all the money, where does it invest it? Enter the different asset classes.
Broadly speaking, there are 4 main areas: stocks, bonds, commodities, and alternative investments. These are all different types of investments in the financial markets, each with their own risk and return profiles.
When it comes to stocks, these range from blue chips, which are the biggest companies in the world like Apple, Amazon, and Google to growth stocks such as those from emerging countries.
With bonds, these can range from corporate bonds, so those issued by companies, like when Apple sold $14 billion in bonds, to government bonds which can be issued by a country, like the US treasury bonds.
Then we have commodities, which are essentially raw materials. Common commodities are gold, copper and oil.
Finally, we have alternative investments, which is a very vague term to be honest, but these include hedge funds, private equity, or real estate. Even fancy art work that’s bought and sold is considered to be an alternative investment.
Asset Management Careers
When it comes to the careers there are primarily 3 main categories: investment team, client-oriented, and the support category.
Investment Team
The investment team is the most obvious path, and consists of the portfolio manager, the research analysts, and the trader. The portfolio manager is the decision marker and in charge of making sure that the portfolio hits the right risk and return targets. The research analyst is in charge of knowing what’s going on in the market, so researching, and coming up with investing ideas and then pitch them to the portfolio manager. The trader’s role mainly concerns the execution of the trade. It’s nots so much about generating a great idea, but more so about doing the trades which the portfolio manager tells you. Since, asset management companies are so large, the investment team will specialize in a specific asset class within a region. For example, a team might focus on US government bonds, or blue-chip French stocks.
Client-Oriented Careers
The next big category is client-oriented careers, which are employees in sales, relationship management, events etc. These are the people that are in charge of attracting new clients, by hosting events, going to conferences etc. They also have to keep the current clients happy by answering whatever questions they might have and attending to them.
Support Team
Finally, you have the support category, which helps these other two categories do their work. This involves the legal side, human resources, compliance etc.
Out of the three, the investment team is probably the most prestigious, but all three categories are essential, if one wasn’t there, then the other two would simply be unable to do their job.
Hours - As for the hours, it’s not like investment banking or management consulting where you might have to work 16-hour days, or 80-hour weeks. Split by category, it’s around 12-hour days (60-hours per week) for the investment side, 10-hour days(50-hours per week) for the client-oriented side, and around 9-hours a day (45-hoursper week) for the support side.
Pay - When it comes to salaries for entry-level investment team jobs in a big US city, you can earn around $70-80,000, and even reach 6 figures with bonuses. Since the client-oriented and support teams work less hours, they typically earn a bit less.
Skills - Finally, looking at the skills required, for the investment side, spreadsheets will be your best friend, alongside being strong in research and math. For the client-oriented side, as you can probably imagine, it’s more about communication, interpersonal skills, and sales ability. Depending on whether you’re more numbers oriented, or people oriented, you might be more suited to one or the other.
Asset Management Companies
When it comes to the type of companies in this sector there’s a split between what are known as pure asset managers, and divisions within investment banks.
Pure players are those that are primarily asset managers, these include BlackRock, Vanguard and Fidelity. Their core business is asset management and they’re massive, managing over several trillion of USD.
On the other hand, there’s the asset management division within an investment bank. Investment banks have several client facing divisions like sales and trading, research, investment banking, and obviously asset management. So, for an investment bank, asset management is just one of the many important business operations they have. Hence, they’re not considered pure asset managers. Some examples of investments banks with large asset management divisions include JPMorgan, Goldman Sachs, and UBS.
Additional Resources
If you want to develop your skills to compete for elite level asset management roles, take a look at our Excel for Business & Finance Course, our Complete Finance & Valuation Course and more using the get started button below.
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