In today’s dynamic investment markets, managing your assets is crucial for securing long-term financial stability and success. Whether you are an entrepreneur, asset owner, or a financial professional, understanding the concept of asset management is crucial to maximize returns.
While the concept of asset management has existed for several decades, it has taken on a more structured form and nature today. As asset owners, it is important for anyone to keep up with the evolution and adapt to changes on the fly.
This article will provide a brief overview of asset management, its types, and everything involved in this process.
As we know, an asset is a resource that is expected to increase in value over time and produce a profit. This can include real estate, stocks, bonds, businesses, patents, or any other type of investment. Managing the assets of a company on its behalf in order to increase its worth over time is known as asset management.
In other words, asset management involves the process of planning and controlling the acquisition, operation, maintenance, renewal, and disposal of organizational assets. An effective asset management process will improve the returns potential of assets and minimize the costs and risks involved.
Employing effective asset management strategies, adequate maintenance, and proper deployment of systems, people, and processes ensure a positive enhancement of capital over the asset lifecycle. Asset management also involves monitoring market trends, making investment decisions and executing trades.
Managing assets is an important service for large companies that use investments as the main mode to generate more income and use them for more operational cash flow for investments, like updated infrastructure, technology resources, and more.
Companies manage their assets through asset managers or portfolio managers who work for an investment firm, bank, or a professional specialized to do this job for them. When a company participates in asset management, the asset manager invests the company’s capital in stocks, bonds, real estate, private equity and more.
It is important to emphasize that asset management strongly depends on relationships, communication, quick decision-making, and analytical skills. Because of these reasons, an asset management company is very selective with their employees, i.e. asset managers.
This defines the number of stages the assets of a firm go through during the lifespan of their ownership. The asset lifecycle is the period an organization can effectively use its assets to achieve its business objectives. An asset lifecycle covers all phases of an asset’s life, from acquisition or ownership to maintenance and eventual disposal.
The definition of asset management can vary from one organization to another. However, in general, asset management can be classified into the following three types:
This type covers the process of handling things like fixed asset management, inventory management, infrastructure, and public asset management
Any asset management that covers the processes of managing procurement, developing an investment strategy, controlling budget and costs, and handling cash, bonds, and stocks is known as financial asset management.
This type of asset management streamlines processes such as IT asset management, digital asset management, contractual maintenance, and also overlooks the management of intangible assets.
A reliable asset management company can help businesses monitor and manage their assets using a systematized and tested approach. By incorporating a fail-proof process, organizations can improve their productivity levels and improve the efficiency of their assets, as well as the subsequent potential to improve returns.
While the strategies used for this can vary from one asset management company to another, here are seven best practices that ensure effective asset management:
Just like the best practices, the tools and techniques used for asset management also vary from one asset management company to another. However, all of them use a variety of tools and techniques to create a personalised strategy for managing their clients’ investments.
Here are some common tools and techniques used by asset managers to successfully manage the assets of their client companies.
This technique allows an asset management company to forecast and almost predict the future potential of investments based on algorithms and statistical models. Under this model, they analyze market trends to identify investments that best align with their clients’ goals.
Using effective risk management techniques helps asset managers minimze and reduce the impact of risks associated with investing.
The techniques used here can (1) Include diversification, which includes spreading out their asset investments (2) Hedging, which involves investing in one type of asset to offset losses in another; and (3) Stop-loss orders, which automatically sell an asset at a predefined price.
These risk management strategies are developed based on the risk tolerance and financial goals of the clients.
Using this strategy allows an asset management company to help its clients build a diversified portfolio that maximises returns and minimises risks.
Depending on the goals of the clients, asset managers can choose a mix of different assets for this purpose, like bonds, stocks, and real estate.
This goes by the famous investment saying, “don’t put all your eggs in one basket”, which ensures their clients are not too heavily invested in one particular type of asset.
Thanks to technological advancements, asset managers now use financial software to analyse market trends, investment performance, and opportunities and then make informed decisions.
Analytics can help an asset management company conduct up-to-date research on potential investments and data analytics, thereby predicting future profit. Incorporating these technologies also allows them to create efficient and accurate portfolio management platforms that automate tasks related to managing investments.
This technique allows asset managers to determine the future performance of the investments they are considering with their assets. To use this they will mainly look at industry trends, financial statements and reports and other economic data to evaluate companies for their growth potential.
Although often overlooked, asset management is a crucial function for many organizations, especially those that use their assets as a means to generate more cash flow and develop more opportunities for other investments. This can help them improve their IT infrastructure, upgrade their workplace, and reinvest the funds into the growth of their workforce.
Using a reliable asset management company that is specialised in this very specific task can firstly give a company more time to focus on other core areas of the business. Secondly, because they have the latest and up-to-date information regarding your classes of assets, they know the best options to maximise returns and minimise risks. Lastly, it directly has a positive influence on other parts of finance and accounting, such as ensuring compliance, reducing loss, simplifying audits, and reducing cycle costs.
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