We’ve all heard about top asset management companies and their performances over the decade. But today, we will dive deeper into understanding the functioning of these asset management firms and their function in the financial world. First, let’s start by understanding what an asset management company is? An asset management firm is a company that functions by pooling in funds from different investors, and then according to their knowledge, understanding and calculations invests it into different options of investment like equities, real estate, gold debt etc.
Usually, an asset management company is run by asset managers or fund managers who first set up the investment objective, mitigate the risk in the markets and then cautiously decide the investment strategy. To give an example, if the asset management company as a debt fund, that that would primarily be invested in government securities and bonds and the objective of this investment will be to get moderate returns, but at less risk, which does not necessarily happen in long short fund.
To make sure that the trust of the investors is maintained with the asset management company, then the AMC has to cautiously make moves on investing their clients, by which we mean, the investors’ money and that too in different kinds of instruments of investments. The classification of equity and debt depends on the market conditions and prospective rates of interest. For this, it is the professional experience and knowledge of the asset managers of these asset management companies in India or any where in the world, plays great role in properly allocating the resources to different classes of assets.
Unlike in investment banking, the asset manager needs to sit with their client, the investor, understand their companies’ current financial portfolio and scrutinize it and make a good and proper investment portfolio. This is hands down one of the most important decisions that an asset management company has to take. This needs to have a very thorough analysis and research done so as to formulate a portfolio with well adjusted risk. They also need to make sure that these investments do not underperform when there are heavy fluctuations in the market. To make a good investment portfolio, the asset managers need to be able to take calculated risks.
After they have successfully made the respective investment portfolio, they cannot just let it be then. The asset managers need to be on it from time to time. They are answerable to the investors and trustees of the companies for all the investment decisions that it takes. Therefore, they do something known as the periodic assessment of fund performance where the returns on funds, net asset value, and allocations of assets is scrutinized and judged. These results are available to all the investors too for review.
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