Asset management is the process of deciding where best to invest money. Asset management firms are entrusted with clients' money and invest it long-term. By investing in assets and markets growing in value, the firms hope to maximise their clients' returns on their money.
How do they operate?
Asset management firms usually arrange their investments into distinct funds that are invested according to particular criteria. For example, a fund might invest in a mixture of bonds and equity (see glossary for definitions) from all around the world, or a much more strictly-defined set of assets.
Funds can be actively managed, where qualified fund managers use their judgement and experience to generate a good return, or passively managed by elaborate computer systems. Though managers tend to gravitate towards assets with the best returns, it is vitally important to reduce risk by maintaining a balanced portfolio.
Who are the clients?
Anybody with large amounts of capital in reserve could use asset management services. In practice, the industry's clients are usually means insurance companies, retail banks and pension funds, all of which hold large deposits from people who use their services.