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Private investors (both directly via investment contracts and more commonly via collective asset management schemes. In the USA and the UK, two of the world's most sophisticated fund management markets, the tradition is for institutions to manage client money relative to benchmarks. The theory of portfolio diversification was originated by Markowitz and effective diversification requires management of the correlation between the asset returns and the liability returns, issues internal to the portfolio (individual holdings volatility), and cross-correlations between the returns. The 3-P's (Philosophy, Process and People) are often used to describe the reasons why the manager is able to produce above average results. The Capital Asset Pricing Model (CAPM) developed by Sharpe (1964) highlighted the notion of rewarding risk and produced the first performance indicators, be they risk-adjusted ratios (Sharpe ratio, information ratio) or differential returns compared to benchmarks (alphas).
Analysts who generate above-average returns often become sufficiently wealthy that they eschew corporate employment in favor of managing their personal portfolios. Under the remit of financial services many of the worlds largest companies are at least in part investment managers and employ millions of staff and create billions in revenue. Some research suggests that allocation among asset classes has more predictive power than the choice of individual holdings in determining portfolio return. Multi-factor models were developed as an alternative to the CAPM, allowing a better description of portfolio risks and an accurate evaluation of managers� performance. Investment managers who specialize in advisory or discretionary management on behalf of (normally wealthy) private investors may often refer to their services as wealth management or portfolio management often within the context of so-called "private banking".
At the heart of the investment management industry are the managers who invest and divest client investments. You always need to be kept up to date by your team. A typical case for an equity fund would be to calculate every quarter and would show a percentage change compared with the prior quarter. Over a 10+ years period in most countries, equities have generated higher returns than bonds, and bonds have generated higher returns than cash. The US was by far the largest source of funds under management in 2005 with 48% of the world total. It is thus possible that successful active managers (measured before tax) may produce miserable after-tax results.
Institutions measure the performance of each fund (and usually for internal purposes components of each fund) under their asset management, and performance is also measured by external firms that specialise in performance measurement. An enduring problem is whether to measure before-tax or after-tax performance. "Philosophy" refers to the over-arching beliefs of the investment organisation. For example, does the manager buy growth or value shares (and why)? Previous financial goals achieved by your future asset management team need closely read. If the team has changed greatly (high staff turnover or changes to the team), then arguably the performance record is completely unrelated to the existing team (of fund managers). The term asset management is often used to refer to the investment management of collective investments, whilst the more generic fund management may refer to all forms of institutional investment as well as investment management for private investors.
Category: InvestingAsset Management was written by:Author:Peter NutterAdded: Mon, 15 Oct 2007 20:30:35 -0400 This Article Has Been Read 292 times View all Peter Nutter's articlesAbout the Author: To find out more about Asset Protection or Asset Management please visit http://www.asset-protection.onlineoffersforyou.com.com/ or http://www.asset-management.onlineoffersforyou.com.com/ |
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