What is an asset management firm?
An asset management company/firm, also known as an investment management company/firm, is a company that invests a pool of investors’ funds into investment vehicles, most commonly company stocks, bonds, and other types of securities.
The goal of the asset management firm is to achieve certain investment objectives, which are clearly stated and often one of the primary factors that attract investors. Asset management firms often provide professional consulting and have deep knowledge of securities, stock markets, and investment management.
The asset management companies that offer public mutual funds or exchange-traded funds (ETFs) are often called investment management companies. Offering such public funds from the asset management companies makes it very easy for a large number of investors to put their money to be managed by a firm.
Such public funds or ETFs are usually traded by individual investors on online trading platforms and via brokers such as Robinhood, Revolut, Fidelity, Interactive Brokers, and eToro.
Benefits of asset management firms
There are many benefits of using an asset management company. These include the following:
They perform the job of managing your money
By using an asset management company, you don’t need to spend time analyzing the markets, stock fluctuations, potential companies to invest in, etc. All this is very time-consuming, and asset management companies are saving you time by performing this job.
Analyzing stock markets and investment vehicles is very complex – only experts in financial markets and investment management can do this job successfully. Some online trading platforms allure new and naive “investors” to do this by themselves, primarily due to the ease of investing through these platforms.
Still, we should clearly say that the ease of using the platform is not equal to the ease of achieving the desired financial objectives. Quite often, it’s the opposite.
Asset management companies take care to diversify your money. You don’t need to think about it or spend time on this.
Who uses asset management firms?
Investors that delegate the management of their money to an asset management company range from small investors, through high-net-worth individuals (HNWI), to large corporations and pension funds.
Despite the diverse group of investors, they all share a common interest – they want to employ the asset management company to manage their money to achieve certain financial goals, usually related to increasing the value of their investments over time.
Which are the most prominent asset management firms?
While there are many asset management companies around the world, the most prominent are:
- Black Rock,
- Capital Group,
- JPMorgan Chase,
- State Street,
You can’t fail to notice that while there are some international players, such as Amundi, almost all of the big asset management companies are based in the USA. Investors outside the USA can still use some of these large US asset management firms that have subsidiaries in other countries.
For example, while residents of the European Union can’t invest directly in Fidelity, the company offers child entities in certain countries such as Germany, where investors can put their money to be managed by the local German branch of Fidelity.
Also, many of the public funds and ETFs of the asset management companies can be traded on online trading platforms and through brokers internationally. Still, we must admit that you are far better positioned to take advantage of these established asset management companies if you are living in the USA.
How to choose an asset management company?
Obviously, the first thing you should analyze is which asset management companies operate in your country.
If you are in the USA, you are lucky as you have plenty of choice. If you are in another country, you should see which asset management companies have local subsidiaries and also which online trading brokers operate in your country and offer ETFs on their platforms.
Once you have nailed down the list of potential asset management companies, consider these criteria:
- Historical performance – how successful has the investment management company been in achieving its financial goals?
- The company fee – asset management companies usually charge their investors a fee. Sometimes it’s as low as 0.5% of the investment per year, but it can go up to 2%. This is very important as large fees can diminish the potentially higher returns of the firm.
As a general rule, avoid high fees. While high returns are never guaranteed, the high fees will remain.
- The companies whose stocks constitute the largest chunk of its investment portfolio – is this fund just another “me too” fund with a portfolio similar to any other large fund?
Usually me-too funds are lazy or lacking the skills to select high-performing stocks and just copying other funds to hedge the risk. While this gives investors a degree of surety, it also almost entirely eliminates the chance of beating the market.