Investment management refers to the handling of an investment portfolio or a grouping of assets. It involves asset allocation management, asset buying and selling, investment strategies, and a tax plan. It can also include banking, budgeting, and other financial duties.
The term most often refers to the management of holdings in an investment portfolio and trading them to achieve a specific investment objective. Investment management is also known as money management, portfolio management, or wealth management.
Understanding the Management of Investments Professional investment management aims to meet particular investment goals for the benefit of clients whose money they have the responsibility of overseeing. These clients may be individual investors or institutional investors, such as pension funds, retirement plans, governments, educational institutions, and insurance companies.
Investment management services include asset allocation, financial statement analysis, stock selection, monitoring of existing investments, and portfolio strategy and implementation. Investment management may also include financial planning and advising services, not only overseeing a client’s portfolio but coordinating it with other assets and life goals.
Bonds, equities, commodities, and real estate are just a few of the financial assets that professional managers deal with. The manager may also manage real assets like precious metals, commodities, and artwork. Managers can help align investments to match retirement and estate planning as well as asset distribution.Running an Investment Management Firm
There are a lot of responsibilities that go into running an investment management company. The firm must hire professional managers to deal with, market, settle, and prepare reports for clients. Other duties include conducting internal audits and researching individual assets—or asset classes and industrial sectors.
Aside from hiring marketers and training managers who direct the flow of investments, those who head investment management firms must ensure they move within legislative and regulatory constraints, examine internal systems and controls, account for cash flow, and properly record transactions and fund valuations.
Generally, managers with at least $25 million in AUM or those who advise investment companies offering mutual funds must be registered investment advisors (RIA).
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They must register with the Securities and Exchange Commission (SEC) and state securities administrators and agree to accept the fiduciary duty to their clients. This means they may face criminal liability if they don’t act in their client’s best interests. Those with less than $25 million in assets only register in their states.
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Investment managers are usually compensated via a management fee, which is a percentage of the value of the portfolio held for a client. Also, fees are typically on a sliding scale—the more assets a client has, the lower the fee they can negotiate. The average management fee is between 0.5% to 2%.
Challenges of Investment Management
Market Behavior
The revenues of investment management firms are directly linked to the market’s behavior. Because of this connection, market valuations influence the company’s profits. Major asset price declines can lead to a drop in the firm’s revenue, especially if the reduction is great compared to the ongoing and steady company costs.
Clients may be impatient during hard times and bear markets, and even above-average fund performance may not be able to sustain a client’s portfolio.
