ASSET MANAGEMENT

Professionals aim to increase the wealth of their clients by buying, selling, and maintaining investments with the potential to grow in value on their behalf. Firms provide investors with the benefit of diversifying their investments and getting discounts on their purchases. In return, firms profit from charging the investor a fee or a percentage of their return.

They require investors to invest substantial amounts and have discretionary trading powers over their funds, meaning they do not have to consult the investor before making an investment. These Assets/investments form part of a portfolio, and said professionals must maximize its value whilst maintaining a low and/or acceptable level of risk for their clients. Clients range from high net-worth individuals, to pension funds, to government entities.

For example, BlackRock, the world’s largest asset manager (9.5T USD AUM), recently raised 673M USD for a climate-focused infrastructure fund as part of the Climate Finance Partnership following the COP26 Conference. The fund is dedicated to helping French, German, and Japanese government entities in their environmental goals focused on accelerating the shift to renewable energy in emerging markets by investing in climate infrastructure.

In contrast, more niche, boutique firms will focus on a local scale to maximize value for their clients, as opposed to supporting whole foreign economies. Europa Capital, a pan-European Asset Manager very recently announced the launch of its 3rd country specific European industrial/logistics investment platforms with the formation of the Dutch Distribution Platform (“DDP’) in partnership with ARC Real Estate Partners, an independent Real Estate Investment Trust (REIT) based in Holland.

Regardless of the size of the firm, and the type of client, the two main objectives remain.

i) To increase value &

ii) mitigate risk.

Meeting objectives is a strenuous task. The asset manager’s role is to conduct rigorous research using several investment techniques. Some firms prefer a bottom-up micro-based approach, some prefer a top-down macro-based approach. It all depends on the client’s risk appetite and financial goals. Therefore, different clients will have their money invested in different asset classes, as these also differ in risk and return. For example, the stock market can deliver fast returns, whereas property is ideal for long-term asset management.

An asset class is a group of similar investment vehicles. There are 3 main asset classes used by Asset Managers, but this extends depending on firm.

Equities, Fixed Income and Money Market Instruments (equivalent to Cash).

Most investment professionals also include this unexhaustive list of alternatives: real estate, commodities, futures, other financial derivatives, and even cryptocurrencies. By compiling portfolios with a number of different investments, therefore diversifying, firms can lower idiosyncratic risk (risk affecting a particular set of specific assets).

Benefits of Asset Management go beyond just creating value for clients. Positive externalities spill over in the existing economy. For example, Asset Managers also act as intermediators and capital allocators. They move money from where it is, to where it is needed and can best support investment, growth, and jobs for the wider benefits of society. Therefore, their allocation decisions help maximise economic efficiency and influence financial stability.