Asset management means deciding where to invest money. Asset management firms take care of large sums of money for corporate and individual clients.
How asset management works
Asset management firms might manage clients' money in a freestanding way, or could put the money into a fund run by them containing money from a number of clients.
Many funds run by asset management firms will seek to take advantage of opportunities in a particular product or region, or in a particular type of company – for example, ones thought likely to grow fast. A golden rule of asset management, however, is to have a portfolio that’s diversified to some extent in order to minimise risk.
Asset management firms' clients
The main corporate clients of asset management firms are pension funds, insurance companies and retail banks, who entrust large pools of individuals' savings to them. Asset management firms also offer products that individual investors can buy into.
Asset management firms charge their corporate and individual clients a fee for managing their money, usually a proportion of the money invested.
Asset management firms and the real economy
Much of the money that asset management firms invest is the savings and insurance funds of ordinary individuals. Asset management firms therefore help all of us to protect ourselves for the future.
In addition, asset management firms tend to invest much of this money in corporate debt and equity products, thereby providing a vital source of capital to the economy.
Because pensions, insurance and savings products are long-term investments, asset management firms are able to commit this money to corporates for many years, providing stable long-term funding to the real economy that’s not available from many other sources.