How Asset Management Works

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Asset management (investment or value management) is one of the key financial services and describes the taking of (financial) investment decisions by a third person acting as asset managers.

A manager investing in stock market shares is obliged to assess the risk / return profile of its portfolio, as well as differences in risk (tracking error) and profitability compared to the benchmark.

Under such management, the manager invests primarily in bonds and cash products. And is thus obliged to assess the maturity of investments (duration), changes in interest rates (difference of the yield curve relative to normal) and the rating of its corporate bonds.

Not only is investment advice being rendered, but also investment decisions are made independently by the asset managers. The focus of this business inolves the management of major private and institutional domestic and foreign assets, of various classes (stocks, bonds, real estate and liquidity).

The aim of the asset manager is to optimize the asset portfolio of the client, taking into account its specific risk situation and short to long term planning.

Private asset managers are part of commercial banks and the free market. The asset managers optimize and maintain the assets for the customer. In contrast to a fund, portfolios are structured to work according to an individual investor’s personal needs.

Wealthy individuals usually employ the services of a property manager, if the care of the property requires too much time or the owners do not have the necessary skills. A minimum investment amount also specifies several administrations as an entry criterion.

The manager has to find a value of a diversified portfolio by allocating its funds in various asset classes, on different industries and different geographical areas. Beyond the purely financial assets, the manager can operate on currencies, commodities, real estate, etc.

Banks offer asset management, and yet there is a risk of conflict of interest because the bank earns by selling its own financial products in the portfolio of clients on both the asset and also on the product. Independent asset managers relate in part to retrocession, which has the same effect. For these reasons, customers want cost transparency and safeguards which limit the maximum cost (total expense ratio warranty).

Asset management can be used with the aim of achieving a high value with the given capital (maximum principle), thus, the goal is a planned increase in value by as little capital to reach the desired principle. So to the corporate client, asset management is about the direct optimization of the bound business assets to ensure a commercially successful business.

 

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