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Thursday, February 29, 2024

What is Asset Management… really?

Okay, let’s start at the beginning and answer the most basic question; what the heck is asset management really?

Asset management is defined by the International Organisation for Standardisation (ISO) (2014b: 10) as:

“the coordinated activity of an organisation to realise value from assets (where realisation of value involves the balancing of costs, risks, opportunities and performance benefits).”

Asset management is the act of managing all of your financial assets, to ensure they get the best returns possible. Financial Service Providers (FSP’s) or establishments like ResAm, have the authority to make investment decisions. Asset managers then receive a fee on a commission basis, sometimes based on the size and/or overall performance of the portfolio. So basically, FSP’s invest the client’s money in the financial markets to make a return over the long-run.

It is important also to know what exactly Asset Classes are:

Asset classes form part of asset management in that they are the different segments of the financial markets that you can invest your money in to. A grouping of investments that have similar characteristics.

The various asset classes differ since each one has different risk factors, return rates, liquidity and market volatility. Each asset class offers different risk and return characteristics and responds and performs differently in any market environment. Investors often use asset category diversification to earn maximum returns with minimal costs.

There are two main asset class categories namely Traditional and Alternative Asset Classes:

Traditional asset classes are generally more liquid and consist of fixed income, real-estate, listed shares and the money market. Alternative investments are usually hedge funds, commodities and private equity; investments which are generally illiquid.