Asset management : guide to the financial sector
Blackrock, The Vanguard Group, State Street, Carlyle… If you want to work in the world of finance, you may be familiar with these great names in the asset management industry. These groups’ tentacles are, directly gold indirectly, in the capital of a number of pharaonic companies. This earns them good reviews and other conspiracy theories.
In our case, these are groups that are the dream of many financial because their activity is part of the most prestigious universities: the management of assets. If the movie “Wall Street” and “Wall Street: money never sleeps” you have a dream, if you are also seen in the skin of Gordon Gekko, if you venerate Warren Buffett then this article is for you.
What is asset management: definition and explanation
Asset management, also known by its English name “asset management” is a profession, which is to manage and invests in an investment policy that is defined in advance to maximize performance.
The objective of an asset manager is to place the funds that are entrusted to him in full conformity with its investment mandate. This concept of the mandate, or investment policy, is extremely important. In fact, it frames scrupulously what a manager can do or not.
The majority of people think that the only duty of a manager is to maximize the return on his portfolio for his client and his or her employer. This is false! This is, in fact, that half of his activity. The other half is always to respect the mandate that has been entrusted to him.
Thus, if its investment policy consists of investments in long-term and low-risk, a manager can’t have fun investing in small values, or technology (such as start-ups for example), even if it is convinced that the return on investment would be enormous. It does not have the right because its duty is to maintain the portfolio it manages under a certain level of risk.
Similarly, some customers, banks, or funds have policies that prohibit investment in certain asset classes or sectors. For example, the Vatican bank does not invest in the businesses of weapons or money games. So, it was impossible for a manager who manages directly or indirectly has the capital to invest in companies such as EADS, or Dassault.
The daily work of a manager, therefore, is to constantly rebalance your portfolio to maximize returns while remaining in line with its mandate. To do this, he must be fully aware of the current financial and economic affairs and know its exhibitions, that is to say, not only in which assets of the funds are invested and what factors are likely to fluctuate in value.
Different types of asset management
You may have noticed, the article discusses asset management and non-management actions. Most people often confuse the two activities.
In fact, the management of actions is a sub-category of the asset management industry.
There are several types of asset management, which may depend on the type of assets in which the funds are invested, but also the strategy or method of investment.
Here are the main types of asset management :
Management actions, often shortened as ” management action “, is the type of asset management to invest in shares of companies listed on the stock exchange.
It is a type of management, which consists of striking a fair balance between the mathematics of financial and economic knowledge and techniques.
It is indeed necessary knowledge of financial mathematics, in particular, to verify constantly the risk/return balance of its portfolio and estimate the impact of new investments on the balance.
Economic knowledge is also needed to understand the consequences of each economic news on the companies in its portfolio.
Moreover, the managers also have a very thin area on which they are working because they must have a thorough understanding of the activity of the companies in which they are likely to invest to be able to judge to the best of their potential for growth and the challenges and risks they face. Warren Buffett has always said that he was not investing in companies for which he did not understand fully the business, the product, and the business model.
The manager’s actions are working with computer tools dedicated, the most famous being Bloomberg and Reuters.
We can divide equity management into a variety of sub-categories that are more specific, including the following :
- Managing large-cap: the management shares large-cap consists of an asset management business with the investment environment, the shares of the largest listed companies. Usually, by this we mean, the stock market indexes the most well-known: CAC40 in France, the Footsie 100, or S&P 500 (the 500 largest companies in Europe).
- Management in small and mid-cap: it is this time the investment in the shares of all the companies that are smaller than the large-cap.
- Managing long-only: a strategy called “long” (a term common-law pronounced ” long “) means, in summary, the manager was happy to buy shares. The manager is betting so on businesses that it believes that the value will increase and that the dividends will offer a good return.
- Management short only: you can sometimes see this strategy classified in a different type of asset management that we will discuss later in the article, alternative management. We make mention of it here because management short case, in spite of everything, the shares. Unlike a managing long-only, which is to bet on shares rising, a strategy that is short is to bet on the downside. In (very) short, on Monday, the manager shall borrow on the financial markets, a share of which he thinks that the price will drop and he will sell it immediately. As it was only to borrow, he should well make it at a given time, say on Friday. Once you have arrived on Friday, our manager acquires, therefore, the same action on the financial markets and makes it to the one that was paid. If as expected, the rate has declined during the week, our owner has purchased the action for less expensive than what he had sold it and made a profit. This summary is very schematic since our goal is to explain to you in a simple way how you can bet to the downside on the stock with a strategy short, no you do a course in market finance.
- Management long-short: you guessed it, a strategy long-short consists of a mixture of the two previous strategies, namely, that the manager can bet on shares rising and falling at the same time. As the strategies shorts only, it is a method of asset management that can be classified in alternative strategies, but that we present in the part of management actions, as it relates to a majority of the shares.
- Active management or passive: in passive management, the manager seeks to replicate a stock market index or another benchmark. His goal is not to bet big on a value, in particular, he thinks that the course is going to explode, but to replicate the best values of an economic sector, a stock market index, a geographical area, etc… on The contrary, active management seeks to find value in addition to the stock indices by finding shares with strong potential.
Finally, be aware that the management actions are not trading! The time when we bought a package of shares at 10 am in order to resell at 10: 15 am is gone. It exists only in the films of the 80s on finance. Today, computers make it infinitely faster and trading is thus a matter of PhD’s in mathematics more than financial.
Therefore, the management actions focus on the horizons of investments longer, several months, or even years. Managers invest in shares because they think that the economic performance of the companies behind these actions will be good in the next few months, and rarely speculate on the very short term.
Rate management is the management category of assets that affect the obligations, and other “products” rates, for example, monetary products (rate of exchange).
So, rather than investing in stocks, the manager buys and sells bonds to businesses, public entities (States, municipalities, etc.), or rate products shared (mortgages are pooled as the famous sub-prime real estate).
Rate management is much more mathematical than equity management and managers often have profiled more scientific while there are obviously exceptions.
The objective of the manager is to keep a duration (maturity of its investment) in line with its mandate and monitor the evolution of the rate curves of its investments compared to the rates at which it is financed in order to maintain its profit margin.
There is a sub-category of rate management called ALM for Asset Liabilities Management. This activity is familiar to the insurers, in particular, aims to manage a portfolio of products that the rate should systematically cover the liability of the company.
For example, for an insurer, its liability is the amount that can claim by its policyholders every month to repay their accidents, health costs, etc… The insurer in place of the contributions of its members, in particular on products of interest and must be careful that the duration (or maturity) of its investments always corresponds to the duration of its liabilities to not end up without liquidity on the day on which he is required to reimburse the insured.
Real estate management
Yes! You read that right: estate management is also a category of asset management.
Be careful though, he is not here to buy a studio to rent to students. We’re talking real estate “scale”: corporate real estate, shopping centers, retirement homes, high-rise apartments, etc.
Some funds invest only in commercial real estate and it is their job to find goods with the lowest risk possible, the main risk being premises remain vacant. A huge shopping mall in the middle of a sparsely populated area will be interesting so not a lot.
You will have understood, to manage real estate of this magnitude induced to be of interest a great deal to the economic and financial news, you have a critical spirit and know the activity of the potential tenant. For example, the crisis of the Covid 2020 has fostered the emergence of teleworking… hence decreasing the need for offices in many companies. This is the kind of trend that a manager of real estate assets must perfectly know and anticipate.
Among the biggest groups in the management of real estate assets, we find, in particular, CBRE, JLL, or Nexity.
Asset management infrastructure
This sub-category of the asset management approach is part of property management in the sense that it relates to property. On the other hand, it is infrastructure in the broad sense: industrial, energy, transport, etc.
You’ve probably already seen the news on the investment funds that purchase airports, parks, solar or wind, etc… It is the investment in infrastructure.
It is common for funds that invest in these assets to be supported by actors in the industry who are familiar with the business in order to delegate to them any of the operational parts.
For example, the infrastructure fund that purchases the interests in the assets of renewable energy (wind, solar, or wind), or does not buy 100% of the shares in order to allow a part to an actor industrial (EDF Renewable or Engie in particular), or enter into maintenance contracts with the same actors in order to delegate the operational management of the infrastructure. This is quite logical: is this that you have already seen a banker go repair a wind turbine with its adjustable wrench?
If you want to have examples of financial companies that invest in industrial assets, here are a few: Macquarie, which is an asset management company in Australia and in the present case, the largest in the world for what it is infrastructure assets with, for example, motorway concessions in France, the Copenhagen airport and Brussels airport. You will also find actors such as Ardian Infrastructure, Allianz Infrastructure Equity, or AXA Future Infrastructure.
Finally, all types of asset management that do not fall into the previous categories are generally classified into alternative management.
Nevertheless, we can identify at least two sub-categories of alternative management :
- Private Equity: it refers to the investment in non-listed companies in the stock market. It is one of the disciplines at the most prestigious in finance. We have also written an article dedicated to private equity, through which you’ll learn all about this type of asset management.
- Hedge Funds: the category of hedge funds combines a lot of different activities. For example, all of the funds trading with high frequency are considered hedge funds. As we explained earlier, these are trades very mathematical and computer. Hedge funds, fund activists, and vulture funds are also considered to be hedge funds. Finally, some hedge funds are simply the management action, but with the strategy, short only or long short, and this allows them to be positioned halfway between the hedge fund and management actions.
Now that you know what is the management of assets, you’re probably wondering what are the main actors.
We can distinguish five types: banks, insurance companies, investment funds, family offices, and corporates.
Banks and asset management
Most of the large banks of the management of assets on their own funds or the funds of external investors.
Banks such as Credit Agricole CIB, Societe general, JP Morgan, Goldman Sachs, HSBC, etc… have as well of the important activities of asset management to place either their own funds or the funds of their clients (your booklet, for example).
The amounts in question are so important that their management is diversified across every type of asset management that we have seen previously (equity, bond, real estate, alternative).
Some banks are also specialized in the management of assets, although they also have other activities. La Compagnie Financière Edmond de Rothschild is well known for its asset management business, while the other famous bank that shares this surname, Rothschild & Co, is most famous for its banking business, for example, the M&A.
Finally, some of these banks have even finished by outsourcing a part of their asset management activities to subsidiaries or former subsidiaries to become “quasi-independent”, for example, Amundi, the first asset management company in Europe, which is the result of the merger of the asset management business of Credit Agricole and Société Générale.
Example of banks with trades of asset management :
- BNP Paribas Asset Management
- Amundi Asset Management
- Lazard Frères Gestion
- BNP Paribas Real Estate
- Natixis Asset Management
- JP Morgan Asset Management
- CM-CIC Asset Management
- BNY Mellon
- Company General Management
- Barclays Wealth Managers
- BNP Investment Partners
The insurance and asset management
Insurance companies are, by definition, businesses of asset management. In fact, their main occupation is to collect the contributions of their clients and to invest those funds until a client retrieves a portion, or to compensation (accident, health care, etc…), either for his retirement.
Large insurance companies are very active in the business of asset management in order to place the funds of their contributors. As we have seen, ALM is an important aspect of insurance: the duration of assets must always be in line with the duration of liabilities.
As for the banks, the major insurance groups are investing in all areas of asset management and have a wide range of businesses to offer: equity, bond, real estate, hedge funds, and infrastructure, …
It should also be noted that this joint activity between banks and insurance companies has pushed banks to engage in insurance and vice-versa. This is what is commonly known as “bancassurance”.
Example insurance jobs asset management :
- Axa Investment Managers
- Allianz Global Investors
- Groupama Immobilier
- Groupama Asset Management
- Allianz Asset Management
- Axa Real Estate
The investment funds and asset management
Now here’s a category of major players in asset management whose job it is to 100%: the investment funds. Some are even sometimes referred to as simply as groups of asset management, given that it is their sole activity.
There are all sizes and various types.
The largest asset management companies are, and they even traded and manage the sometimes several thousands of billions of euros: Amundi, Blackrock, Carlyle … one of The most famous of which is the asset management company of Warren Buffett himself, I named Berkshire Hathaway.
Given the know-how of these companies in terms of asset management, some banks or insurance companies devolve even a part of their management: this is commonly known as funds-of-funds: an investment fund invests in another investment fund that has a better mastery of a type of management in particular. For example, in the division of asset management, and insurance can invest in a hedge fund specializing in high-frequency trading or in a fund infrastructure because it does not itself have the skills for this type of management.
Outside of the major groups of asset management, there are obviously some investment funds that are smaller but have more flexibility in their activities and are sometimes more effective than the big funds. To mention a few of them in Paris: Moneta, Sycamore, or Ardian. They can also enjoy great prestige if they perform well.
The funds of smaller sizes are usually specialized in a type of management, as the major groups are often specific departments for all types of management. You will see not, therefore, a fund specialized in venture capital to invest in real estate while a group like Blackrock is present in all the business of asset management.
Finally, among the largest investment funds, we find funds to States that administer the public funds of some countries. We think immediately to the fund of Qatar, who purchased the PSG, but we find this type of fund in many oil-rich states such as Saudi Arabia, Kuwait, Brunei, Norway, and China, but also in France with the Caisse des Dépôts et Consignations.
Here are a few examples of groups of asset management and other investment funds :
Large groups of asset management private :
- Blackrock – the world leader
- The Vanguard Group
- State Street
- CVC Capital Partners
The fund States :
- Government Pension Fund Global – funds of the Norwegian State, the largest in the world
- China Investment Corporation
- Abu Dhabi Investment Authority
- Kuwait Investment Authority
- Hong Kong Monetary authority
- GIC Private Limited – Singapore
- Qatar Investment Authority
The investment funds are smaller :
- Omnes Capital
- The Financial of the Exchequer
- Admiral Management
Family offices: the management of the assets of the very rich
If you already have the chance to be rich or you need to become a part of your fortune will surely be invested in one or more actors in the management of the assets listed above: private banks, investment funds, etc…
But if you become very, very, but really very rich, and then have your private banker you need more. In this case, what would you say to have your own investment fund?
This is what is commonly known as a Family Office.
Family Offices are investment funds that deal to invest and manage the assets of the very rich of this world.
Their management is, in general, diversified in order to limit the risk to the heritage of the family.
In addition, these funds do not usually have the capacity and technical skills sufficient for some types of very specific. They can thus be fully charged investments in stocks, bonds, Private Equity, or real estate. However, trading strategies or complex investments in infrastructure will be out of their reach. To take advantage of this type of strategy, they invest in hedge funds and funds of investment external dedicated to these trades.
Among the family office, include :
- Algaé Ventures, the family office of the family Arnault,
- Artemis, the family office of the family Pinault,
- Financière Saint James, the family office of Michael Benabou co-founder of the Sale-Private
- Otium Capital, the family office of Pierre-Edouard Stérin founder of Smart Box,
- SGPA, the family office of Jean-Paul Guisset founder of the group JPG leader in distance selling office supplies.
Corporates and asset management
Finally, some large industrial or commercial undertakings may also have an asset management business. They are, in spite of, while quite rare in this case and their asset management business is necessarily closely related to their core business.
You know as well EDF for its main activity is the production and distribution of electricity. But did you know that our national company of electricity has also a subsidiary of asset management? This isEDF Invest.
You ask, therefore, probably why EDF has a subsidiary of asset management. As we said, this is actually linked to the core business of EDF, namely nuclear. In effect, the regulatory authorities of the nuclear force EDF to provide sufficient funds to finance the future dismantling of its nuclear power plants, work that cost billions. Therefore, EDF has created its subsidiary EDF Invest, which manages more than 10 billion euros invested in real estate, infrastructure, and private equity. EDF owns part of other managed portfolios invested in equities and bonds that will finance the decommissioning of nuclear power plants when the time comes.
You can also Google talk about his background in private equity GV (formerly referred to as Google Venture) which invests in technology start-ups. Once again, it is linked to the sector of activity of Google, the technology, the whole game is to keep a technical lead on competitors. The bottom GV allows Google to put one foot in young technology companies that may in the future supplement the activities of the famous search engine.
What you need to know to work in asset management
The professions related to asset management are varied but they all have one thing in common, which will not surprise you: your notions in finance have to be perfect.
This is a SORTING, a VaR, a VAN, of the cash flows, multiples, etc… you should be perfectly comfortable with all of these notions.
These are also skills that you will require total control of its tools and, in particular, of the Office suite. You must be on an Excel table like a fish in the water. On the tools specific to these trades, such as the famous Bloomberg, it is obviously advisable to know and notions. In spite of everything, a first course nobody will ask you to know by heart. Try, if you can, you learn about the internet in order to be better prepared than other candidates (Youtube is your friend) but you will learn the most technical parts on the heap.
Finally, keep in mind that there are bridges between certain areas of corporate finance and asset management.
A candidate who has made the M&A will often be appreciated in the business of managing assets such as infrastructure, real estate, and private equity, of course.
Concerning the management of the stock markets or rates, these practical experiences of the past will likely have less impact. In spite of everything, you will see that you are being a worker and you learn quickly, which represents an asset that is very strong.
The hours of business of asset management are generally more reasonable than in corporate finance, including M&A. This is a point that can attract many candidates.
Salaries are on average slightly lower in the M&A, but they remain very much more than the average. Finally, for the trades that affect the front office, that is to say, closer to the investments (for example, the managers or analysts), a good part of the remuneration is made up of bonuses based on your results. If you performed, so you can move up to double your salary. Even the bankers in M&A will not take up!