Asset Management Company is an entity that manages a pool of their clients’ funds to further put money in diversified investment alternatives. The investment strategy adopted by Asset Management Companies varies depending on the financial objectives and risk appetite of their clients. In return, the company charges fixed service fees or commission to generate revenue.
The core focus of the Asset Management Company is to take lucrative investment decision that can provide maximum returns to investors with exposure to a larger pool of resources that an individual investor might not have access to. The company is principally responsible for managing hedge funds, mutual funds and pension funds.
Key Responsibilities of Asset Management Company:
Investment Decision- Asset Management Companies are considered as buy-side companies who assist their clients in investment decision based on in-house research and data analysis as well through research reports purchased from sell-side firms.
Allocation of Assets- The asset managers allocate funds to several assets in varying proportion and constructs a portfolio. For instance, the debt and equity ratio may change depending upon the fund strategy. It may use a higher percentage of Debt and marginal percentage of Equity to maintain Beta at 1 or below 1. Or on the other hand, in the approach of generating a substantial profit, it may keep the Equity element at a higher proportion.
Building Portfolio- On the basis of research and expertise, the analysts of the Asset Management Company decides which securities to sell, buy or hold. The performance of securities is gauged by the team of ACM’s analysts to compare its financial returns with the comparison to industry standards.
Performance Evaluation- The review of portfolio performance forms an essential part of managing assets. The evaluation is measured through Net Value Asset (NVA) of the portfolio and the historical performance of the securities in which the asset manager has invested.
How Should an investor select the Asset Management Company?
It is difficult to rely on anybody when it comes to hand over your hard-earned money for management. The investors need to track the past record of the Asset Management Companies and observe the returns that they have delivered to their clients earlier. The stance of the company during market volatility is another measure that needs to be taken care of.
But before buying any fund, one needs to see what’s the potential value that it can create. The investor should perform a careful analysis of price and value before taking its decision based on low-pricing.
It is also essential for the investor to know who the team members are and what experience do they hold. The manager should possess extensive experience in fund management, market analysis and creating projections.
The decision to select Asset Management Company is often governed by the fees or commission charged by the company. The commission is generally charged as the percentage of total assets under management. To avoid this fluctuation in service charge, the investors go with those Asset Management Companies which charge fixed fees.
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