Asset management

Overview

Asset management refers to the systematic process of developing, operating, maintaining, upgrading, and disposing of assets in the most cost-effective manner. The term is most commonly used in finance, where it refers to individuals and companies that manage investments on behalf of others. These include, for instance, investment banks, mutual funds, and hedge funds. Asset management is a growing field due to the increasing popularity of savings plans and a rising need for individuals to take charge of their own retirement planning.

History

The concept of asset management has been around in various forms for centuries. In the early days, it was simply the process of managing one's property and wealth, whether it was land, livestock, or gold. As economies grew more complex, the need for professional asset management increased. The first mutual funds, which are a form of asset management, were established in the 18th century. The modern concept of asset management, however, really took off in the 20th century with the rise of institutions such as mutual funds, pension funds, and insurance companies that professionally manage investments.

Types of Asset Management

Asset management can be divided into several types:

Financial Asset Management

Financial asset management, also known as investment management or portfolio management, refers to the sector of the financial services industry that manages investment funds and client portfolios. This includes asset managers, hedge funds, private equity firms, and other types of investment vehicles.

Infrastructure Asset Management

Infrastructure asset management is the combination of management, financial, economic, engineering, and other practices applied to physical assets with the objective of providing the required level of service in the most cost-effective manner. It includes the management of the whole life cycle (design, construction, commissioning, operating, maintaining, repairing, modifying, replacing and decommissioning/disposal) of physical and infrastructure assets such as structures, production and service plant, power, water and waste treatment facilities, distribution networks, transport systems, buildings, and other physical assets.

IT Asset Management

IT asset management (ITAM) is the set of business practices that join financial, contractual, and inventory functions to support life cycle management and strategic decision making for the IT environment. This includes all elements of software and hardware that are found in the business environment.

Enterprise Asset Management

Enterprise asset management (EAM) involves the management of the maintenance of physical assets of an organization throughout each asset's lifecycle. EAM is used to plan, optimize, execute, and track the needed maintenance activities with the associated priorities, skills, materials, tools, and information.

Asset Management Process

The asset management process can be divided into five core components:

1. Setting Objectives: This involves determining the client's needs and risk tolerance, as well as setting an investment strategy that aligns with these factors. 2. Asset Allocation: This involves deciding how to distribute the client's investments among different asset classes, such as stocks, bonds, and cash. 3. Security Selection: This involves choosing specific securities within each asset class for investment. 4. Portfolio Monitoring: This involves regularly reviewing the portfolio to ensure it remains aligned with the client's objectives. 5. Rebalancing: This involves adjusting the portfolio as needed to keep it aligned with the client's goals.

Role of Technology in Asset Management

Technology plays a crucial role in asset management. It enables asset managers to track and manage their assets efficiently. Modern asset management systems can track an impressive amount of information about each asset, including its location, how it's being used, when it was last serviced, and when it's due for replacement. This information can be used to make informed decisions about asset maintenance, as well as to plan for the future.

Challenges in Asset Management

Despite its importance, asset management is not without its challenges. These include:

- Regulatory Compliance: Asset managers must comply with a variety of regulations, which can be complex and time-consuming. - Risk Management: Asset managers must manage the risk associated with each investment, which can be a complex task. - Technology Integration: Many asset management firms struggle to integrate new technologies into their existing systems. - Data Management: Asset managers often have to deal with large amounts of data, which can be difficult to manage and analyze.

Future of Asset Management

The future of asset management lies in the use of technology and data. With the advent of artificial intelligence and machine learning, asset management firms are able to analyze large amounts of data more quickly and accurately than ever before. This allows them to make more informed decisions and to manage their assets more efficiently.