'Investment Management' is explained in detail and with examples in the Trading edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.
Investment Management proves to be a general term which most often relates to purchasing and selling investments inside of a portfolio. It might also be utilized to cover budgeting and banking tasks and tax management. Most of the time, the phrase pertains to managing portfolios and trading securities to reach a particular set of investment goals or objectives.
Analysts and economists also call Investment Management by the names of money management, private banking, or even portfolio management. This includes the professional money management of various assets and financial instruments. Among these are equities, bonds, real estate, and other types of securities such as gold, derivatives, and mortgage-backed securities. Successful and well-rounded management of investments works to achieve particular investment objectives for the good of the underlying investors. Such investors are not necessarily individuals, or private investors. They are often family investment offices as well as institutional investors. Among the various deep-pocketed institutional investors are governments, pension funds, sovereign wealth funds, insurance companies, and educational foundations.
The services of Investment Managers cover many functions. These include analysis of financial statements and assets, proper asset allocation and diversification, investment instruments and stocks selection, financial plan implementation, estate planning, and maintenance of existing investments in the portfolios. An entire industry has grown up around these needs for wealthy clients and investors. This is called the Investment Management industry.
For those who feel led to start an Investment Management firm, there are many important and sensitive tasks that must be successfully accomplished. This starts with hiring professional money managers. It extends to performing research on types of asset classes and particular investments. Marketing, dealing, settling, and internal auditing are all core functions on the administration side of the business. Finally, this type of firm will have to prepare regular reports and statements for the various clientele.
This means that it requires much more than simply hiring an effective asset gathering marketing team and a highly qualified and results-driven money management staff to manage the daily flow of investing. Owners of these firms must also handle the various jurisdictional regulatory and legislative environments, carefully monitor the business’ cash flow, stay on top of the internal controls and all systems, and accurately record and track all fund values and any transactions performed.
This means that Investment Management firms have a certain set of stressful problems that they deal with routinely. This is the trade off for what can be substantial and highly lucrative rewards. First of all, investment management firms are highly dependent for their income on the performance of the various asset markets. In other words, the firm’s profits will often come down to the progress of the markets. When asset prices suffer a substantial decline, this will undoubtedly lead to the management firm’s revenues dropping off. This is particularly the case when the fall in prices is higher than the investment basis cost of the company.
There are also issues of client expectation management. When times in the markets are hard and lean, clients can become agitated, impatient, and even angry. Even fund performance which is above industry average may not be good enough to keep the clients satisfied with their portfolios’ progress. This is the reason it is critical for any investment management company to attract and retain highly successful money managers. The problem with this is that top talent is costly and hard to keep loyal when the competition is always hungry for and eager to steal effective money managers.
For clients who are seriously contemplating a particular Investment Management firm, it is a common mistake to single out only the performance of one particular investment manager on staff. Instead the all-around total performance of the investment firm is what matters. This is why a successful investment company will have to retain expensive and performance-generating investment managers in order for their clientele to be willing to trust in the firm to manage their money.