What exactly is Asset Management? It refers to an overall systematic approach to the realization and management of value from all the items that an entity or team is responsible for, within their entire life cycles. It can apply both to fixed assets and to variable assets. The key idea underlying this concept is that the asset class itself is the place where the value creation processes take place in the firm.
Some firms and even individual entrepreneurs implement some form of asset management on a short-term basis, as part of their overall business growth strategy. There are a number of reasons why some organizations opt for short-term implementation of asset management techniques. One is the need for flexibility in dealing with rapidly changing circumstances, especially when dealing with a wide variety of possible variables that could have a strong influence on the value of their assets. Another is the need for faster implementation of financial risk control mechanisms. Some firms have internal mechanisms that help them deal with potential shocks to the value of their assets, in case they become suddenly undervalued, for example through a sudden change in interest rates. On the other hand, some companies have long-term investment mandates that require them to purchase a certain amount of assets on a regular basis, regardless of their profitability at that moment.
The essence of asset management is the use of a variety of techniques and strategies to gain a more holistic view of an organization’s entire portfolio. This allows investors to evaluate an organization’s financial health, as well as its exposure to risks, over the long-term. The goal is to ensure that a firm is maximizing its return on investment (ROI), while minimizing its total cost of ownership, or TCO. This also allows service providers, like investment management firms, to determine the right time to sell or buy certain assets. In most cases, these financial services companies work closely with asset management investment banks. TCO is calculated by subtracting costs, such as administration fees, from a firm’s overall ROI, so that it can be determined as an absolute measure of an institution’s profitability.
So, how does asset management refer to financial services, specifically the investment management industry? When a firm invests in an asset, it is called an asset, and the various ways in which these assets are used is called its impact on the firm’s bottom line. Asset management is therefore the systematic process of allocating capital effectively to enhance the profitability and attractiveness of the firm’s current portfolio of holdings.
How do financial intermediaries benefit from asset management services? Financial intermediaries are financial institutions, like investment banks, commercial lenders and insurance companies, who facilitate the purchase, sale and transfer of financial instruments, including equities, derivatives, interest rates and securities, among many others. Financial intermediaries have a lot to gain from good market timing. They are able to exploit certain opportunities when other financial institutions and other businesses are unable to do so, resulting in substantial profits for them. And, by providing timely and reliable information on such opportunities, they help firms take advantage of them, thereby increasing their overall profitability.
In what way does an effective asset management process helps businesses? By diversifying their portfolios and spreading their risk, it ensures that businesses have access to diverse, as well as adequate, sources of short-term capital, while minimizing their exposure to risks associated with only a few specific assets. Effective asset management process helps businesses achieve the following benefits: First, by spreading their risk among several different types of assets, a firm can reduce its overall risk, since some assets may have a lower impact on the firm’s bottom line than others. Second, through this diversification process, a firm can better allocate capital between different types of investments, which can also lead to better returns.
What is Asset Management? Finally, the last question we would like to address in our discussion is how we understand the concepts and ideas of asset management. Broadly speaking, asset management refers to the action of managing a firm’s financial assets in accordance with their usage, age, value, and other relevant criteria. As such, the goals of asset management refer to maximizing the value of a firm’s assets while minimizing the risk associated with them. Asset management therefore involves taking an appropriate inventory of one’s firm’s assets, understanding their risk profile, and taking measures to mitigate them.
Managing the lifecycle of assets is an important part of asset management. Proper asset management ensures that firms can use their assets in the most optimal manner. This aspect of asset management is often referred to as maintenance. A firm can either seek to enhance its maintenance or face the consequences of its poor management of assets, including depletion.