What is ‘Investment Management’
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Investment management is a known phrase that deals with the buying and selling of investments within a portfolio, and can also include certain banking and budgeting duties, in, in general, to taxes. The term most often refers to portfolio management and the effective trading of securities in order to achieve a specific investment objective.
Decoding ‘Investment Management’
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Investment management which is also very much referred to as money management, portfolio manager, meant, and private banking, in fact, cover the professional management of different types of securities in addition to other assets, like bonds, shares, real estate and such other securities.
Proper investment management always aims towards meeting particular investment goals which in turn is aimed towards the benefit of the investors. These investors are usually individuals (private investors) who have built investment contracts fund managers, or institutional investors who are pension fund corporations, governments, educational establishments, and insurance companies. Investment management services include stuff like asset allocation, financial statement analysis, stock selection, monitoring of existing investments and plan implementation.
Investment Management Industry:
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The global investment management industry in the year 2015 was worth the estimated $79 trillion in assets under management, as measured by the PricewaterhouseCoopers report in 2017. In the case of corporate finance, investment management includes ensuring that the company’s tangible and intangible assets are properly maintained, accounted for and well-utilized. Meanwhile, investment management also includes the advising services of an advisor, who in turn coordinates the client’s portfolio.
Running an Investment Management Business
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Running an investment management business does involve hiring professional managers, dealing, marketing, settlements, preparation of reports for clients, internal auditing, and running individual asset and other asset classes research. Apart from hiring marketers and training managers who direct the flow of investments, the ones who want to run investment management firms must ensure that they move many legislative and regulatory constraints, examine the internal systems and controls, properly account for cash flow and properly track record transactions and other fund valuations.
The Key Problems in Running an Investment Management Firm:
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Though the investment management industry provides lucrative returns, there are also many key problems that come along with running an investment management firm. The revenues of these investment management firms are directly linked to that of the market’s behavior. This means that the company’s profits depend very much on the market valuations. A major decline in the asset prices can cause a sharp fall in the firm’s revenue, especially if the price fall is much greater compared to that of the company costs.
Also, clients may be much impatient during hard times, and an above-average fund performance may not be successful in sustaining clients’ portfolios. This is investment management firms usually hire successful managers. However, these managers are expensive and are taken by other competitors. Though some clients care to look at the performance of individual investment managers, others do check out the overall performance of the company, meaning that the firm must hire successful, expensive investment managers for the clients in order to trust the company with the money.
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There are a variety and quite a range of different styles for fund management that the institution can implement. For example, the growth value, the growth at a reasonable price (i.e. GARP), market neutral, etc. Each of these approaches has its own distinctive features, adherents and financial environment in addition to other distinctive risk characteristics. For example, there is some evidence that growth styles that buy rapidly growing earnings are very effective when the companies able to generate such growth are scarce. Contrastingly, when such growth occurs in plenty, then there is much evidence that value styles tend to outperform the indices quite successfully.
Large asset managers are profiling their equity portfolio managers in order to trade their orders more effectively. This strategy though less effective with small-cap trade has been quite effective for portfolios with large-cap companies.
Performance measurement of Investment Management:
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Fund performance is quite often thought to be the one acid test of fund management, and in the institutional context, a much accurate measurement is most often than not a necessity. For that purpose, institutions often measure the performance of each and every fund (and usually for internal purposes, the required components of each fund) under the management, and performance measured by external firms specializing in performance measurement. The leading performance measurement firms in this aspect, compile and aggregate the industry data, e.g., displaying how funds, in general, have performed against the given indices and other peer groups over various time periods.