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Asset Management Explained: Key Roles and Benefits
Management of investments such as stocks, bonds, and other financial instruments in various asset classes
What is Asset Management?
Understanding asset management starts with defining the word “asset.” In the broadest sense, an asset is anything that delivers value to its owner and the stakeholder(s) it serves. Stocks, bonds, residential properties, and commercial office buildings are all examples of assets.
In finance, asset management describes managing money on clients’ behalf. The financial institutions managing the money are called asset managers, and they develop and execute investment strategies that create value for their clients. Broadly, this process involves “putting money to work” by buying, holding, and selling financial assets with the potential to achieve a client’s investment goals. Examples of financial assets include stocks, bonds, commodities, shares in private funds, and more.
Most importantly, asset management firms are “fiduciaries.” This means that, unlike other parts of the financial services industry, asset management clients provide full trading authority — also known as “discretion” — of their funds to their asset manager. In turn, asset managers are legally required to act in their clients’ best interests.
Key Highlights
- Asset management firms manage and invest funds for large institutional clients, like global corporations, sovereign wealth funds, and not-for-profit organizations.
- Wealth management firms offer financial and investment advisory services to high-net-worth individuals and families.
- Large national banks will typically offer both lines of business, and the client base is what segments the fiduciary part of the business.
What is an Asset Management Company (AMC)?
An asset management company (AMC) is a firm that invests a pooled fund of capital on behalf of its clients. The capital is used to fund different investments in various asset classes. Asset management companies are commonly referred to as money managers or money management firms as well.
What are the Different Types of Asset Management Companies?
Asset management companies come in many different forms and structures, such as:
- Hedge funds
- Mutual funds
- Index funds
- Exchange-traded funds
- Private equity funds
- Other funds
In addition, they invest on behalf of various types of clients, such as:
- Retail investors
- Institutional investors
- Public sector (government organizations)
- Private sector
- High-net-worth clients
Buy-Side vs. Sell-Side
Asset management companies are referred to as “buy-side” firms. It means that they help clients buy investments. They make decisions based on which investments to purchase.
In contrast, “sell-side” firms, such as investment banks and stockbrokers, will sell investment services to buy-side companies and other investors. Sell-side companies provide market research and help to inform buy-side firms with valuable information to entice the buy-side firms to execute transactions with them.
Benefits to Asset Management Companies
There are various benefits to pooling capital together, including:
1. Economies of scale
Economies of scale are the cost advantages that a company can gain from increasing the scale of operations. With larger operations, the per-unit costs of operating are lower.
For example, asset management companies can purchase securities in larger quantities and can negotiate more favorable trading commission prices. Also, they can invest a lot of capital in a single office, which reduces overhead costs.
2. Access to broad asset classes
Access to broad asset classes means that asset management companies can invest in asset classes that an individual investor will not be able to. For example, an AMC can invest in multi-billion-dollar infrastructure projects, such as a power plant or a bridge. The investments are so large that an individual investor will not usually be able to access them.
3. Specialized expertise
Specialized expertise refers to asset management companies hiring finance professionals with extensive experience in managing investments that most individual investors lack. For example, an AMC can hire various professionals who specialize in certain asset classes, such as real estate, fixed income, sector-specific equities, etc.
Downsides to Asset Management Companies
Asset management companies come with a few downsides as well, such as:
1. Management fees
Most asset managers charge flat fees that are collected no matter what their performance was. As a result, over time, the fees can become very expensive for investors. Because of the costs for the resources and expertise required to run an AMC, the fees are high to compensate for such costs and to provide asset managers with a profit as well.
2. Inflexible
Asset managers can become too large to a point where they are cumbersome and unresponsive to the dynamic market. Managing too large of an amount of capital creates operational problems at times.
3. Risk of underperforming
Typically, the performance of AMCs is evaluated in comparison to a benchmark. A benchmark is a standard to compare performance against, usually in the form of a broad market index. There is the risk that asset managers underperform the markets, and if including the management fees mentioned earlier, it can become very costly for investors.
What are the Differences Between Asset Management and Wealth Management?
Asset management is the business wherein a financial institution manages money on behalf of institutions, sovereign wealth funds, pension funds, corporations, and other large groups.
On the other hand, wealth management is a service that aims to help someone with their entire financial life — both assets and liabilities — whether in financial planning, gifting, or building the legacies they want to leave for their families.
Here’s a list of the key differences between the two:
| Client Types | Primarily institutional investor: Corporations, pension funds, sovereign wealth funds, etc. | Primarily individuals or families |
| Purpose | Manage and grow investment portfolios on behalf of large organizations | Provide comprehensive financial planning across assets and liabilities |
| Services Offered | - Investment in mutual funds, ETFs, stocks, bonds, hedge funds, private equity, etc. | - Investment management - Financial planning - Estate planning - Budgeting - Tax and trust considerations |
| Approach to Client Finances | Focused on managing pooled investment funds and institutional portfolios | Deep understanding of the client’s entire financial situation, including balance sheet, income, goals, liabilities, and more |
| Additional Services | Generally focused on institutional investing strategies | May include private banking services, such as tailored advice on loans, mortgages, and other retail financial products |
| Customization Level | More standardized portfolio strategies aligned with institutional objectives | Highly personalized financial strategies based on individual/family goals and circumstances |
| Goal | Maximize returns and manage risk for pooled capital | Holistic financial well-being: preserving wealth, financial planning, and legacy building |
What are the Largest Asset Management and Wealth Management Firms?
You might recognize the names of the largest asset management firms in the world, as they are also some of the world’s largest financial institutions overall. The top five asset management firms globally are:
- BlackRock (USA)
- Vanguard Group (USA)
- Fidelity Investments (USA)
- State Street Global Advisors (USA)
- Morgan Stanley (USA) Source: Refinitiv as of March 31, 2022
When it comes to the world’s largest wealth management firms, you will see some overlap with the top asset managers list because global banks typically have both asset management and wealth management lines of business to serve both their institutional and individual consumer bases. Morgan Stanley is a good example of this. The top five wealth management firms globally are:
- UBS Global Wealth Management (Switzerland)
- Edward Jones (USA)
- Credit Suisse (Switzerland)
- Morgan Stanley Wealth Management (USA)
- Bank of America Global Wealth & Investment Management (USA) Source: Adv Ratings as of June 1, 2020
Summary
Asset management continues to play a critical role in the global financial system, helping individuals, corporations, and institutions grow and protect their wealth. As capital markets expand and become more sophisticated, the demand for skilled asset managers has grown steadily, making it a field rich with opportunity and long-term relevance.
For aspiring finance professionals, asset management offers not only intellectually rewarding work but also strong career advancement potential, competitive compensation, and the chance to make a tangible impact on clients’ financial futures. Whether you’re interested in portfolio strategy, risk analysis, or client relationship management, there are diverse roles and pathways within the industry to explore.
