NEWS AFFAIRS 7 : WHERE EVERY STORY HAS IT'S AFFAIR!
Last updated on August 23rd, 2024 at 12:26 am
What is Investment Management ?
Investment management also known as Asset Management is a part of financial services.
In investment management professionals invest in things like stocks, bonds, and real estate to help their clients reach specific financial goals.
Clients can be anyone from large institutions like insurance companies, pension funds, corporations, charities, schools, to individual investors.
Direct vs Collective Investment Contracts
Direct Investment Contracts in which clients directly hire managers to invest their money based on agreed goals and strategies.
Collective Investment Schemes in which investment options like mutual funds, exchange-traded funds (ETFs), or real estate investment trusts (REITs).
- These are pooled funds where many investors’ money is combined and managed together, making it easier to invest in a diverse range of assets.
Running an Invest Management Firm ?
Investment management companies are not easy to run; it involves 100 times more hard work to handle their clients’ investments correctly and provide positive results.
Some Responsibilities of an Investment Management Company :
Hiring Professionals: Employ managers to handle investments, market the firm’s services, settle transactions, and prepare client reports.
Conducting Audits or Regularly check internal systems to ensure everything is working correctly and efficiently.
Researching Investments: Study individual assets, asset classes, and industry sectors to make informed investment decisions.
Legislative and Regulatory Compliance: Ensure the firm operates within legal and regulatory boundaries.
Managing Cash Flow: Keep track of money coming in and going out and properly record transactions and fund valuations.
Registration Requirements
Assets Under Management (AUM): Investment managers with $25 million or more in AUM must register as Registered Investment Advisors (RIA) with the SEC and state securities administrators.
Fiduciary Duty meaning Registered advisors must act in their clients’ best interests and can face legal consequences if they don’t.
Firms managing less than $25 million in assets usually only need to register in their states of operation.
Compensation
Management Fee: Typically a percentage of the client’s portfolio value, ranging from 1% to 2%.
Sliding Scale Fees: Larger portfolios may negotiate lower fees.
Investment management can be a lucrative field, but it also comes with significant challenges.
Advantages and Disadvantages of Investment Management in simple terms:
Advantages of Investment Management
- Professional Analysis: Investment managers use their expertise to analyze the market and make informed decisions.
- Full-Time Diligence: They constantly monitor investments and market conditions, working full-time to manage your money.
- Ability to Outperform the Market: Skilled managers may be able to time the market or choose investments that perform better than average.
- Protection in Down Times: Good managers can help protect your portfolio during market downturns.
Disadvantages of Investment Management
- Sizeable Fees: Professional management often comes with high fees.
- Profits Fluctuate with the Market: When the market goes down, so can the firm’s profits.
- Competition from New Alternatives: The industry faces challenges from new, lower-cost options like robo-advisors and ETFs (exchange-traded funds).
Key Challenges
Robo-Advisors: These are digital platforms that use algorithms to manage investments. They are cheaper because they don’t involve human managers.
ETFs: These funds track a market index and require minimal human decision-making, leading to lower fees.
Impact of New Alternatives
Lower Fees: Robo-advisors and ETFs charge lower fees than traditional investment managers.
Performance: Because they have lower fees, these alternatives can sometimes outperform traditional funds.
Pressure on Investment Firms
To stay competitive, investment management firms must hire talented professionals. Clients look at how well the firm manages money not just in good times but also in bad times. A sign of a good investment management firm is not just how much money it makes for clients when the market is up but how little it loses when the market is down.
