Asset management in Korea


Global Asset Management? Say what?

Global asset management is the path that a client’s portfolio will be taken by a financial services company, whether it is an investment firm or an asset manager. Financial institutions usually provide investment services like investing in Korea aside from a many different traditional and alternative offerings, which, under normal circumstances, might not be offered to the average person.

How to Understand Asset Management

Asset management is described as the management of assets and resources on behalf of some other person. This practice basically has two goals and this is to appreciate the asset of the client while at the same time, minimizing risk. However, as mentioned above, this is not made available to everybody, as there is an investment minimum involved. This means that this service is normally reserved to persons that have a high net-worth, government units and financial intermediaries.

The main function of an asset manager is to ably determine which investments to make and which to avoid with the purpose of advancing a client’s portfolio. To do this, extensive and arduous research is carried out using many different analytical tools and instruments.

This includes taking an in-depth look into the current market trends, conducting interviews with officials of different organizations and basically, doing anything that would help achieve the goal of developing the client’s assets further. Usually, the wealth management officer will invest resources in products like fixed income, commodities, real estate, mutual funds and alternative investments.

Financial institutions often hold accounts such as credit and debit cards, margin loans, check writing privileges and the sweeping of cash balances into brokerage services or a money market fund. When someone deposits money into your account, it is usually transferred to a money market fund that gives the client a better return compared to regular savings accounts. Account holders have the choice between Federal Deposit Insurance Company-backed (FDIC) funds and non-FDIC funds. Another benefit that clients can enjoy is their banking and investment needs can be carried out by the very same financial institution rather than having a different brokerage account.

These kinds of accounts came to be, thanks to the Gramm-Leach-Bliley Act, which was passed in 1999 and replaced the Glass-Steagall Act. The former was created at the height of the Great Depression and forbade financial organizations from offering both banking and security services.

That brings us to the question: what does an asset management company do?

What is an Asset Management Company?

An asset management company is a company that invests the pooled funds of clients, using the capital to work through various investments that may include bonds, real estate, stocks and so much more. Aside from portfolios that have a high net-worth, asset management companies also take care of hedge and pension plans and produce pooled structures such as index funds, exchange-traded funds and mutual funds that can be managed in a one integrated portfolio.

Asset management companies are more popularly known in the industry as money managers. Those firms that provide either mutual funds or exchange-traded funds (ETFs) are also referred to as investment companies. Examples of these companies include Fidelity Investments, Vanguard Group and T. Rowe Price just to name a few.

But again, for the uninitiated, what does an AMC do?

Since they have a large pool of resources on hand compared to an individual investor, asset management companies can give investors a diverse range of investment options. Purchasing or making moves for so many clients lets asset management companies to observe the economies of scale, usually even getting discounts on their purchases. Gathering assets and then, paying out relative returns also lets investors elude the minimum investment requirements that are often asked for when buying securities all on their own. In addition, they also gain the ability to invest in a wide swath of securities even with a small amount of funds.

Sometimes, asset management companies claim previously agreed-upon fees from their investors. In other situations, the firms charge a remuneration, which is calculated as a fraction of the client’s overall assets under management or AUM.

For example, if an AMC is managing a portfolio that is worth $4 million, and the AMC levies a 2% fee, it basically owns $80,000 of that investment. If the value of the investment grows to $5 million, the AMC then owns $100,000, and if the value declines, so too does the AMC’s purse. However, there are asset management companies that mix flat fees and percentage-based fees.

Usually, asset management companies are believed to be buy-side companies. This essentially means that they help their clients purchase investments. asset management companies make the call on what to purchase depending on the research they have done and the data that they have gathered. However, they also consider recommendations from sell-side companies.

Now, what are sell-side firms? These include companies like investment banks and stockbrokers that sell investment services to asset management companies and other investors. They carry out a lot of investigation and research into the market, closely inspecting trends and then, creating projections of their own. Their main goal is to basically produce trade orders wherein they can levy commissions or transaction fees.

What is the Difference Between Asset Management Companies and Brokerage Houses?

Asset management companies and brokerage firms have a lot of overlap when it comes to their functions that it may be tricky to discern one from the other. Aside from trading securities and conducting comprehensive analysis, a lot of brokers also offer their expert advise and at the same time, manage the portfolios of their clients. There are also those that offer  proprietary mutual funds.

Generally though, brokerage firms almost always accept every client no matter how much resources they have to invest. These firms also have a legal standard to offer services. In contrast, many asset management companies are considered to be fiduciary firms, which are held to a higher standard. Failure to do so will mean facing criminal liability. The reason why they are held to a higher standard is because wealth management officers often have discretionary powers over accounts, which means they can buy and sell and make investment calls all on their own, without any consultation with the client.