Asset Management: A Complete Guide to Asset Management

Do you often wonder what we mean when we talk about asset management?

Are you looking for a one-stop article that defines what asset management is all about and how to get started?

Then welcome to our comprehensive guide on what is asset management.

In this guide, we will be exploring:

• What is asset management?
• What asset management companies do?
• The different types of asset management
• How to choose the right asset management firm

WHAT IS ASSET MANAGEMENT?

Asset Management can be defined as the organized procedure of developing, managing, and promoting assets (by a firm) in a cost-effective way. It is a financial term that involves the rendering of services to government entities, high net-worth individuals, pension funds’ companies, and corporate bodies, ensuring there is an appreciation of said client’s assets over a period with low or no risk involved.

Also, according to the Institute of Asset Management, it is the “coordinated activity of an organization to realize value from assets. It involves the balancing of costs, opportunities, and risks against the desired performance of assets to achieve the organizational objectives. This balancing might need to be considered over different time frames it is the art and science of making the right decisions and optimizing the delivery of value.”

There is a high need for Asset Management especially for companies as there is a need to keep track of its assets, it encourages transparency to stakeholders, letting them know the available assets and what can be employed to supply maximum returns. In Asset Management, two main things are of utmost interest to a potential client; one, what role does the Asset Management process play? And two, how can a firm build up a good asset management plan? These will be answered in this article.

It is also important to point out that an asset management company will be working with assets owned by a business body which is in two parts:

1. Fixed assets that refer to assets acquired for long-term use, examples are intellectual properties, human capital, securities, bonds, financial assets, etc.
2. Current assets that refer to assets that can be changed into cash with a short amount of time, examples are buildings, lands, office equipment, etc. this article will also address the importance of this knowledge. 

The overall goal of asset management is to grow a client’s portfolio (profit increase) over time while mitigating risk. The person in charge of managing other people’s assets is called an asset manager or investment manager which in most cases is an asset firm. What makes an asset manager well-placed than investors in charge of their money is their access to internal, comprehensive equity research studies and they have expertise in portfolio management.

Asset Management encompasses the four main stages of the asset life cycle which are:

1. Informed and hands-on decision-making as far as asset investment is concerned.
2. Procurement of suitable assets. 
3. Maintaining, advancing, and operating assets. 
4. Managing asset treatment at the end of their useful life-span. 

Asset Management services are carried out using two methods namely (1) traditional and (2) alternative investment. Examples are debit cards, money market fund accounts, credit cards, and brokerage services. The total funds managed on behalf of a corporate body, including the level of risk and performance per each form of the asset can be determined by a firm through assets under management. 

Key areas of asset management are

1. Research conduct
2. Detailed statistical analysis using different variables {geographical placement, age, ethnicity, income level, etc}
3. Balancing costs and
4. Capitalizing on investment opportunities. 

WHAT DOES AN ASSET MANAGEMENT COMPANY DO? 

As established in the definition aspect of asset management, asset management firms or companies simply manages funds for high-profile individuals and companies. It is their responsibility to make informed investment decisions in the right time-frame on behalf of their clients to increase their finances and portfolio. 

In a more detailed sense, an Asset management company is a firm that invests collective funds from clients, putting the capital to work through various investments such as real estate, stocks, bonds, limited partnerships, etc. Apart from high-profile individual portfolios, Asset management companies oversee hedge funds and pension plans. 

Asset management companies liaise with several investors to expand their client’s portfolios which in return gives them access to higher-value opportunities with enhanced capital appreciation prospects, not forgetting mitigating whatever risks that come with the turf. 

AMCs are also referred to as money management firms and this is because some of such asset management companies manage public mutual funds or exchange-traded funds, they are known as investment companies and such are Fidelity Investments, Vanguard Group, etc.

Asset management companies differ from other financial firms such as investment banks, insurance firms, and brokerages (though they liaise with them as the business dictates) in two broad sense;

1. Financial firms are either on the buying side or the selling side. What an Asset management companies does is to ensure the growth of clients’ portfolios thereby making their foremost role: the making of purchasing decisions that will see to the significant boost in the grand-total value of their clients’ finances while other financial firms focus on granting admittance to funds bring sold, examples are insurance policies, mergers, and acquisitions, stock purchases, etc. 
2. These other financial firms mostly work with large companies due to their selling nature whereas many asset management companies usually work with high-profile individuals. 

AMCs’ managers are usually paid via a fee which is usually a calculated percentage of a client’s total assets under management. Now, what this means is that if the value of the investment increases, so does their share, and if the value decreases, so does their share. Some AMCs merge flat service fees with percentage-calculated fees. Also, most AMCs are held to a fiduciary standard, i.e. a (legal) trust between a professional and a client. 

The integral key of an AMC is this: Since they have a wide pool of resources than a single investor could have access to personally, they, therefore, offer investors with a wide range of investing options. Also, the higher the buying for clients, the more they can practice economies of scale which affords them great discounts on their purchases. They are considered the buy-firms as they typically help their clients buy investments basing their decisions on research, market analysis, data analytics, and trends studies. The flip side of AMCs is:

1. Sizeable management fees 
2. Limited intake of high-profile accounts to ensure proper management. 
3. Risk of underperforming the market.  

WHAT ARE THE TYPES OF ASSET MANAGEMENT? 

As earlier stated, asset management is an expansive field of management that incorporates numerous diverse regulations and industries; we’ll be considering the bulk of them; 

1. Financial Asset Management: It is the sector of the financial services industry that manages investment funds and client investment accounts. In explaining this further, Wikipedia says, ‘Experts who manage money and regulate the investments of clients – from studying the client’s assets to strategizing and looking after the investments – are hired or employed by the company.’ This is by far the biggest of all types of Asset Management and as such is often called or referred to as ‘Asset Management.’
2.  Infrastructure Asset Management: This is the administration of public infrastructure such as electric grids, roads, waterways, water supplies, ports, bridges, etc with a focus on maintenance, regeneration, and substitution of infrastructure to amplify the service life and enhance the quality of existing infrastructure.  In this type of asset management, there is an inclusion of designing, repairing, modifying, replacing and decommissioning of the entire life cycle of such infrastructure assets. 
3. Enterprise Asset Management: This is the care of the fixed or physical assets of an organization consisting of obtainment, process, sustentation, and decommissioning. In most organizations, enterprise asset management has a broad scope that includes the full life cycle of property, plant, and equipment. According to Wikipedia, An EAM consist of an asset registry (inventory of assets and their attributes) combined with a computerized maintenance management system otherwise known as CMMS, and other modules like inventory or materials management. Under EAM, assets that are geographically distributed, interconnected or networked are also most times depicted through the use of Geographic Information Systems (GIS). In most organizations, EAM has a broad scope that includes the full life cycle of property, plant, and equipment. 
4. IT Asset Management: This is concerned with the administration and command of IT hardware and software. It summarizes the maintenance, contract management, and accounting functions for IT assets. In some cases, IT asset management fuse with several business systems such as Enterprise Asset Management, Asset Tracking (formation and continuance of data storage that is associated to assets with tags or serial numbers), Fixed Asset Management, Software License Management, IT Help Desk, IT Standards, Procurement, IT Asset Disposition, and IT Governance.
5. Public Asset Management: This is similar to Infrastructure Asset Management except that it has a wider range that consists of facilities such as schools, parks, public spaces, and airports with also the aim of prolonging the life of such public assets to advance community quality of life and economic productiveness. 
6. Digital Asset Management: This is the supervision of the information collections that an organization possesses, commands, or has the right to use; examples are videos, documents, photos, and multimedia. 
7. Fixed Asset Management: This is the conduct of tracking fixed assets with the objective of financial accounting, maintenance, and prevention of loss. It’s most times considered an accounting task even though it falls – sometimes – under the duties of operations.   

IMPORTANCE OF ASSET MANAGEMENT

There are several reasons why individuals and organizations should include asset management in their financial systems. We already established that it helps a company supervise and manage their assets with the goal of good output and competence with the result of enhancement of clients’ portfolio and better placement of such company to increase investment return if well managed and in turn saves money and time for the clients’ involved. We’ll dig deeper into the importance of asset management; 

1. Collaborative working helps a business to reduce the whole capital costs and operating expenses related to assets. An example is using assets such as vehicles, tools, equipment, processes, and people to work across various business units, geographical settings, and amenities, such assets can be reviewed and handled effectively from a central area. 
2. It allows the company to keep a tight tab on all assets, i.e. through asset management, a company can tell where the assets are located, how they are being put to use, and whatever changes are effected to such assets, if any. There will also be data-keeping which can guarantee asset recovery that leads to profitable returns. 
3. Asset management can be used to keep track of the financial statements of such business or organization for accuracy purposes through continuous and consistent assessments. 
4. Assets that are written off or sold will be removed from the data system and books of the company. This practice ensures the reflection of asset recovery in an asset management system. 
5. A company or individual can save money on maintenance –  through the use of an asset management firm – which is a business expenditure that can cut into the profits of the company which will lead to palpable costs if kept up, on the flip side, under-maintenance can result into reduced or low productivity. This is where asset management comes in. 
6. Management of assets from various locations in a precise and valuable manner. The company won’t have a problem supplying an inventory report when required by an insurance company or lease financers due to the use of the asset management system. 
7. In the IT sector, projecting costs and planning an operating-system improvement is cumbersome in the absence of accurate inventory data, this is where n asset management firm comes in; its IT solution can provide an audit of a serial number, manufacturer model, tags, processor configuration, and installed memory slots. Armed with such vital information, system upgrade and disposal can be precisely estimated within a short frame of time. 
8. Still no the IT sector of asset management, there is no assured security against viruses on a client’s computer, in fact, software downloaded from the internet may contain Trojan viruses and this threatens the security and integrity of the network and vital data records but with a firm managing your asset, such won’t be a problem. 
9. Asset management will help in the identification and containment of risks that come up as a result of utilization and ownership of certain assets. This implies that such a firm will always be ready to counter any risk that they encounter. 
10. Through the use of an asset management firm, a company can keep a tab on its assets throughout its life cycle, thereby fishing out wasteful purchasing practices and developing a more efficient strategy resulting in improvement in the method of possessing and managing assets. 

As you can see, a company or individual must employ an asset management system.

HOW TO GET STARTED WITH ASSET MANAGEMENT 

To get started with asset management, a thoughtful, well-planned policy that is structured to the business’ general financial and corporate plan needs to be first constructed. What the plan does is to serve as a document and a structure for a call for action. This strategy includes defining the purpose of asset management, proposed levels of service, lifecycle planning for products and processes, financial projection, and consistent enhancement of such plans. This strategy might be applied to all assets or some selected high-risk assets as the need is deemed. Necessary steps, to ensure this, are outlined below: 

1. Set Objectives

It is very important to set objectives where asset management is concerned; it shouldn’t be done without an aim or goal in place. This objective must align with the overall objective, missions, and goals of the company and there must be given utmost consideration to misgivings, aspirations, precedence, and potentialities of the business. This is tailored to the overall aim of the company and how asset management will help to bring it into reality. When outlining your objectives, ensure they tick the boxes of SMART; Specific, Measurable, Achievable, Realistic, and Time-bound. 

2. Outline your Strategy

After setting your objectives, there is a need to put a strategy in place to meet such objectives, the first step in doing so is carrying out an audit of your assets and updating of your inventory. Some of the questions that will help you when auditing your assets are: 

1. What assets belong to your company? (liquid or fixed or both)
2. Where are they located at? 
3. What is their present state? 
4. What is the remaining life span? 
5. What is their economic value each? 
6. Discover Threats or Risks Involved

One of the things associated with assets – liquid or fixed – are risks. Talking about risks related to the safety of equipment and infrastructure, environment-related risk, operational safety, and so on in the workplace. Identifying exact risks particular to a level of operation each, combining it with a concise narrative of preventive methods to be employed, care, and risk mitigation is an essential part of an asset management plan. Identifying high-risk assets to the company can help in early planning to avoid failure. 

3. Consider Costs Involved 

The general financial management plan for your company must include concise information on cost assessment in conjunction with the everyday operation, maintenance, repair, replacement, and acquisition costs for all assets. Only when you have this and have weighed the pros and cons should you go ahead in securing management for your assets. 

4. Create an Asset Inventory 

The next thing to do is to create an asset inventory of your business that will reflect all the information needed, tailored to each declared asset, where this information was gotten from and the proposed actions needed. 

5. Supervise and Review 

After all the aforementioned have been put in place, it is imperative to develop consistent supervision and revision of the efficiency and cost-effectiveness of your assets throughout their life cycle. This practice will promote informed and accurate decisions where your assets are concerned. Also, it allows managers a bigger scope geared towards supporting growth and development across the whole business and encourages transparency and accountability.

HOW TO CHOOSE THE RIGHT ASSET MANAGEMENT FIRM 

Choosing the right asset management firm can have a significant impact on the increase and maintenance of your assets, ensuring the securing of your company’s and inherently family’s future. Choosing a good asset management firm will serve as a long-term guide in your financial plans as you create, maintain over time, and ultimately transfer your wealth on to your offspring or protégé. This is to show that sound financial advice must not be taken lightly and must be invested in. there are many factors to consider when choosing an asset management firm but we’ll be considering some key ones.  

1. What is their business model? 
2. What is their client relationship like? 
3. What will they be managing (wealth or assets) and over what time frame (quarter-to-quarter basis or long-term)?
4. What is their investment strategy (investment offers, internal /proprietary investment opportunities or open access, customized method of investment or model-based, use of mutual funds or individual securities, and the firm’s historical performance)?
5. Culture practice of the firm (are your investment ideas united? Is there a mutual understanding of your present portfolio and your projection into the next 3, 5, 7 years? Has there been n in-depth study of your business, objectives, and projections? Are you going by their dictates or there is an informed decision made premised on your aspirations?)  
6. Weigh the asking price to the services that they will be rendering, on the flip side, don’t judge based on the price but the quality of services rendered. 
7. Verify the credentials of the firm before any sort of transaction is carried out. 
8. Determine or establish their mode of payment and draw up a legal document that vividly states this.

There are other factors to consider alongside the highlighted ones above when choosing an asset management firm, that is why it is very germane to do your homework and conduct extensive research on whatever agency you’ve zoned in, don’t go on hearsay or recommendations along, dig up every testimonial or documents that you can on such agency and don’t forget to ask questions from the appropriate quarters.