Investment management, the professional management of various securities (shares, bonds etc) and other assets (e.g. real estate), to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations etc.) or private investors (both directly via investment contracts and more commonly via collective investment schemes eg. mutual funds) . Securities are tradeable interests representing financial value. ... In business and accounting an asset is anything owned, whether in possession or by right to take possession, by a person or a group acting together, e. ... Real estate is a legal term that encompasses land along with anything permanently affixed to the land, such as buildings. ... A collective investment scheme is a way of investing money with other people to participate in a wider range of investments than may be feasible for an individual investor and to share the costs of doing so. ... The central idea of a mutual fund is to enable investors to pool their money and place it under professional investment management. ...

The term asset management is often used to refer to the investment management of collective investments, whilst the more generic fund management may refer to all forms of institutional investment as well as investment management for private investors. Investment managers who specialize in advisory or discretionary management on behalf of (normally wealthy) private investors may often refer to their services as wealth management or portfolio management often within the context of so-called "private banking". A collective investment scheme is a way of investing money with other people to participate in a wider range of investments than may be feasable for a individual investor and to share the costs of doing so. ...

The provision of 'investment management services' includes elements of financial analysis, asset selection, stock selection, plan implementation and ongoing monitoring of investments. Financial analysis is the analysis of the accounts and the economic prospects of a firm. ...

Investment management is a large and important global industry in its own right responsible for caretaking of trillions of dollars, euros, pounds and yen. Coming under the remit of financial services many of the worlds largest companies are at least in part investment managers and employ millions of staff and create billions in revenue. The numeral trillion refers to one of two number values, depending on the context of where and how it is being used. ... This article is in need of improvement. ...

The fund manager (or investment advisor in the U.S.) can be both be defined as the firm which provides investment management services or the individual(s) who direct the 'fund management' decisions. An investment advisor is an individual or firm that advises their client on investment matters on a professional basis. ... Firm can have several meanings: Firm - a loose legal term for a company. ...

Industry scope

The activity of investment management has several facets e.g. employment of professional fund managers, research (e.g. of individual assets and asset classes), dealing, settlement, marketing, internal audit, the preparation of reports for clients. The largest financial fund managers, or institutions, are complex financial firms with all the complexity that their size demands. Apart from the people who bring in the money (marketing) and the people who direct the investment (the fund managers), there are compliance staff (to ensure that no laws or financial market regulations are broken), internal auditors of various kinds (to examine internal systems and controls), financial controllers (to control the institutions own money and costs), computer experts, and the "back office" (the people who track and record transactions and fund valuations for sometimes literally hundreds or thousands of clients per institution). An asset class is a way of classifying investment securities. ... Internal Audit is an independent, objective assurance and consulting activity designed to add value and improve an organisation’s operations. ...

Key problems of running such businesses

Key problems include:

• revenue is directly linked to market valuations, so in the event of a major fall in asset prices revenues decline precipitately relative to costs;
• it is difficult to sustain above-average fund performance and during times of poor performance clients may not prove patient;
• successful fund managers are expensive and may be headhunted by competitors;
• above-average fund performance requires the flair of good fund managers and yet clients usually want to hear that they are hiring a firm (with a single philosophy and internal disciplines) rather than the skills of one or two young men/women;
• evidence suggests that size of investment firm correlates inversely with fund performance i.e. the smaller the firm the better the chance of good performance.

The most successful investment firms in the world have probably been those that have been separated physically and psychologically from banks and insurance companies. That is, the best performance and also the most dynamic business strategies (in this field) have generally come from independent investment management firms.

Representing the owners of shares

Institutions often control huge shareholdings. In most cases they are acting as agents (intermediaries between owners of the shares and the companies owned) rather than principals (direct owners). The owners of shares theoretically have great power to alter the companies they own...via the voting rights the shares carry and the consequent ability to pressure managements, and if necessary out-vote them at annual and other meetings. For other uses, see Stock (disambiguation). ...

In practice the ultimate owners of shares often do not exercise the power they collectively hold (e.g. because the owners are many and diverse each with small holdings), and the financial institutions (as agents) may or may not choose to do so. There is a general belief that shareholders, by which is often meant the institutions acting as agents, could and should exercise more active influence over the companies they hold shares in (e.g. to hold managements to account and to ensure that Boards function effectively). This would mean that there would be another effective pressure group (additional to the regulators and the Board) overseeing management. An advocacy group, interest group or lobbying group is a group, however loosely or tightly organized, doing advocacy: those determined to encourage or prevent changes in public policy without trying to be elected. ...

Some institutions have been more vocal and more active in pursuing such matters than others. Some institutions have believed that there were investment advantages to building up substantial minority shareholdings (e.g. 10% or more) and then bringing pressure on managements to change the way firms were run. Another widespread tactic is for institutions to effectively collude to force management change. Perhaps more widespread is the sustained pressure that large institutions can bring to bear by talk and persuasion as they liaise with managements over time. On the other hand, some of the largest investment managers such as Barclays Global Investors and Vanguard primarily advocate a strategy of essentially simply owning every company, giving them even less of an incentive to pressure management with regards to strategy. Management (from Old French ménagement the directing, from Latin manu agere to lead by the hand) characterises the process of leading and directing all or part of an organisation, often a business, through the deployment and manipulation of resources (human, financial, material, intellectual or intangible). ...

The national context in which shareholder representation considerations are set is variable and important. The USA is a litigious society and shareholders use the law as a lever to pressure managements. In Japan it is traditional for shareholders to be low in the 'pecking order' and for managements and work forces to some extent to operate as mini-clubs able to ignore the rights of the ultimate owners. In Japan we may say that there is more of a stakeholder mentality where it is felt appropriate to seek consensus amongst all interested parties against the background of strong unions and labour legislation. See also Wikipedias Law Portal. ... The examples and perspective in this article or section may not represent a worldwide view. ... Bold textJAMES CHECKLEY Legislation (or statutory law) is law which has been promulgated (or enacted) by a legislature or other governing body. ...

Size of the global fund management industry

Assets of the global fund management industry increased for the second year running in 2004 to reach a record $45.9 trillion. This was up 6% on the previous year and 40% on 2002. Growth during the past two years has been due to an increase in capital inflows and strong performance of equity markets. Part of the increase in dollar terms was also a result of a 15% fall in the value of the dollar (USD index) during 2003 and a further 4% fall in its value in 2004. As shown in Chart 8, between 1999 and 2002 the value of assets under management fell as a result of declines in equity markets.

Pension assets accounted for $15.3 trillion of funds in 2004, with a further $16.2 trillion invested in mutual funds and $14.5 trillion in insurance funds. Merrill Lynch also estimates the value of private wealth at $30.8 trillion of which about a third was incorporated in other forms of conventional investment management.

The US was by far the largest source of funds under management in 2004 with 43% of the world total. It was followed by Japan with 14% and the UK with 7%. The Asia-Pacific region has shown the strongest growth in recent years. Countries such as China and India offer huge potential and many companies are showing an increased focus in this region. [1]

10 largest asset management firms

Global Investor’s 2005 top 10 asset managers by assets under management. (Source: BGI)

The United States dollar is the official currency of the United States. ... Barclays Global Investors is a division of British based Barclays Bank which specialises in asset management. ... State Street Corporation (NYSE: STT) is a financial services company based in Boston, Massachusetts. ... Fidelity Investments is a privately-held company in the financial services industry. ... The Capital Group Companies is one of the world’s largest and most successful investment management organizations. ... The Vanguard Group is an American investment management company that offers mutual funds and other financial products and services to individual investors and institutional investors in the United States and abroad. ... Allianz AG, (NYSE: AZ; IPA pronunciation: [alliˈanʦ]) is a large financial service provider headquartered in Munich, Germany. ... JPMorgan Chase & Co. ... Mellon Financial Corporation, NYSE: MEL based in Pittsburgh, Pennsylvania, is engaged in the business of institutional and high-net-worth-individual asset management, including the Dreyfus family of mutual funds; business banking; and shareholder and investor services. ... Deutsche Bank AG NYSE: DB (German for German Bank) is a multinational bank operating worldwide and employing almost 64,000 people (Dec. ... Northern Trust Corporation NASDAQ: NTRS is a financial services company, headquartered in Chicago, providing fiduciary, banking and investment services for individuals and credit, operating, custody, trust and investment management services for organizations. ...

Philosophy, process and people

The 3-P's (Philosophy, Process and People) are often used to describe the reasons why the manager is able to produce above average results.

• Philosophy refers to the over-arching beliefs of the investment organisation. For example, does the manager buy growth or value shares (and why), does he believe in market timing (and on what evidence), does he rely on external research or does he employ a team of researchers. It is helpful if any and all of such fundamental beliefs are supported by proof-statements.
• Process refers to the way in which the overall philosophy is implemented. For example, which universe of assets is explored before particular assets are chosen as suitable investments; how does the manager decide what to buy and when; how does the manager decide what to sell and when; who takes the decisions and are they taken by committee; what controls are in place to ensure that a rogue fund (one very different from others and from what is intended) cannot arise;
• People refers to the staff, especially the fund managers. The question is who are they, how are they selected, how old are they, who reports to whom, how deep is the team (and do all the members understand the philosophy and process they are supposed to be using), and most important of all how long has the team been working together. This last question is vital because whatever performance record was presented at the outset of the relationship with the client may or may not relate to (have been produced by) a team that is still in place. If the team has changed greatly (high staff turnover), then arguably the performance record is completely unrelated to the existing team (of fund managers).

Investment managers and portfolio structures

At the heart of the investment management industry are the investment managers who invest and divest client investments.

For every client, an certified company investment advisor an assessment should be made on their individual needs and risk profile. Appropriate investments funds will be recommended.

Asset allocation

A great deal of research and experience shows that the asset allocation is the prime determinant of long term returns ^{[citation needed]}. A great deal of thought needs to go into the asset allocation, and changes to the allocation over time. The skill of the successful investment manager consists in constructing the asset allocation, and separately the individual holdings, so as to outperform the peer group of competing fund management organisations, and the bond and stock indices (appropriate to the client's objectives and preferred style). Asset Allocation is a concept of determining and maintaining a plan of investment in terms of a chosen mix of investments in different assets. ...

Long-term returns

It is important to look at the evidence on the long-term returns to different assets, and to holding period returns (the returns that accrue on average over different lengths of investment). For example, over very long holding periods (eg. 10+ years) in most countries, equities have generated higher returns than bonds, and bonds have generated higher returns than cash. According to financial theory, this is because equities are higher risk (more volatile) than bonds which are themselves more risky than cash.

Diversification

Against the background of the asset allocation, fund managers consider the degree of diversification that makes sense for a given client (given its risk preferences) and construct a list of planned holdings accordingly. The list will indicate what percentage of the fund should be invested in each particular stock or bond. The theory of portfolio diversification was originated by Markowitz and effective diversification requires management of the correlation between the asset returns and the liability returns, issues internal to the portfolio (individual holdings volatility), and cross-correlations between the returns. Diversification is a measure of the commonality of a population. ... In statistics, the term cross-correlation is sometimes used to refer to the covariance cov(X, Y) between two random vectors X and Y, in order to distinguish that concept from the covariance of a random vector X, which is understood to be the matrix of covariances between the scalar...

Investment styles

There are a range of different styles of fund management that the institution can implement. For example, growth, value, market neutral, small capitalisation, indexed, etc. Each of these approaches has its distinctive features, adherents and, in any particular financial environment, distinctive risk characteristics. For example, there is evidence that growth styles (buying rapidly growing earnings) are especially effective when the companies able to generate such growth are scarce; conversely, when such growth is plentiful, then there is evidence that value styles tend to outperform the indices particularly successfully. An investor profile or style defines an investor preferences in money decisions, for example: Short term trading or Long term holding Risk averse or risk tolerant / seeker All classes of assets or just one (stocks for example) Value or growth stocks, big cap or small cap stocks, defensive or cyclical... An investment strategy or portfolio is considered market neutral if it seeks to entirely avoid some form of market risk, typically by hedging. ...

Performance measurement

Fund performance is the acid test of fund management, and in the institutional context accurate measurement is a necessity. For that purpose, institutions measure the performance of each fund (and usually for internal purposes components of each fund) under their management, and performance is also measured by external firms that specialise in performance measurement. The leading performance measurement firms (e.g. Frank Russell in the USA) compile aggregate industry data e.g showing how funds in general performed against given indices and peer groups over various time periods. Frank Russell in the USA) compile aggregate industry data e. ...

In a typical case (let us say an equity fund), then the calculation would be made (as far as the client is concerned) every quarter and would show a percentage change compared with the prior quarter (e.g. +4.6% total return in US dollars). This figure would be compared with other similar funds managed within the institution (for purposes of monitoring internal controls), with performance data for peer group funds, and with relevant indices (where available) or tailor-made performance benchmarks where appropriate. The specialist performance measurement firms calculate quartile and decile data and close attention would be paid to the (percentile) ranking of any fund.

Generally speaking it is probably appropriate that an institution should persuade its clients that performance be assessed over a longer period e.g 3 or 5 years to smooth out very short term fluctuations in performance and the influence of the business cycle. This can be difficult however and, industrywide, there is a serious pre-occupation with short-term numbers and the effect on the relationship with clients (and resultant business risks for the institutions).

Absolute versus relative performance

In the USA and the UK, two of the world's most sophisticated fund management markets, the tradition is for institutions to manage client money relative to benchmarks. For example, an institution believes it has done well if it has generated a return of 5% when the average manager has achieved 4%. In other markets however, e.g. Switzerland, the mentality is different and clients and fund managers focus on absolute return management, i.e. returns relative to cash (e.g. Swiss franc or Yen cash) where (performance) fees are payable only if the return exceeds some absolute figure (e.g. 10% per annum).

Education or Certification

Increasingly, international business schools are incorporating the subject into their course outlines and some have formulated the title of 'Investment Management' conferred as specialist bachelors degrees. (i.e. Cass Business School, London). Due to global cross-recognition agreements with the the 2 major accrediting agencies AACSB and ACBSP which accredit over 560 of the best business school programs, the Certification of MFP Master Financial Planner Professional from the American Academy of Financial Management is available to AACSB and ACBSP business school graduates with finance or financial services related concentrations. A business school is a university-level institution that teaches topics such as accounting, finance, marketing, organizational behavior, strategy and quantitative methods. ... A bachelors degree is usually an undergraduate academic degree awarded for a course that generally lasts three or four years. ... // Background The Cass Business School (officially Sir John Cass Business School, City of London) is a highly-ranked world-class business school located in the City of London, England, and is part of the City University, London. ... The Association to Advance Collegiate Schools of Business (AACSB) - is the USA based body which awards accreditation following a review of the quality of Scotts site can be found at Degree programmes delivered by Management Schools. ... The Association of Collegiate Business Schools and Programs was founded in 1988 to create an organization and an accreditation process designed to fit the needs of business programs focused on teaching and learning. ... The American Academy of Financial Management, or AAFM as it is known, is a professional association dedicated to the finance sector and finance professionals. ...

References

• David Swensen, "Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment," New York, NY: The Free Press, May 2000.
• Rex A. Sinquefeld and Roger G. Ibbotson, Annual Yearbooks dealing with Stocks, Bonds, Bills and Inflation (relevant to long term returns to US financial assets).
• Harry Markowitz, Portfolio Selection: Efficient Diversification of Investments, New Haven: Yale University Press
• S.N. Levine, The Investment Managers Handbook, Irwin Professional Publishing (May 1980), ISBN 0-87094-207-7.
• Ahmed ELmi How to Invest!!, Elmi Publishing (June 2004), ISBN 0-458-77410-2

David Swensen is the Chief Investment Officer at Yale University since 1985, where he is responsible for managing and investing more than $15 billion of the universitys endowment assets and investment funds. ... Roger R. Ibbotson is professor of finance at Yale School of Management and is an expert on capital market returns, cost of capital, and international investing. ...

See also

• Corporate governance
• Investment
• Portfolio
• List of asset management firms
• Active management
• Passive management
• Exchange Fund

Corporate governance is the set of processes, customs, policies, laws and institutions affecting the way a corporation is directed, administered or controlled. ... Invest redirects here. ... // Finance Main article portfolio (finance) In finance, a portfolio is a collection of investments held by an institution or a private individual. ... This is a list of corporations that provide financial asset management. ... Active management refers to a portfolio management strategy where the manager makes specific investments with the goal of outperforming a benchmark index. ... Passive management is a financial strategy in which a fund manager makes as few portfolio decisions as possible, in order to minimise transaction costs, including the incidence of capital gains tax. ...

External links

• Investment Company Institute - US industry body
• Investment Management Association - UK industry body
• Institutional Investor - Industry flagship publication
• American Academy of Financial Management - Global Board of Standards