Mutual Funds

What is Asset Management?

Created on 27 Dec 2022

Wraps up in 9 Min

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Updated on 02 Jan 2023

What is Asset Management?

Simply put, asset management is the process of managing a group of assets. These can be physical, financial or intangible assets like goodwill, intellectual property, etc. These assets are managed over their life cycle to derive value from their use.

Asset Management is a systematic process of acquiring, maintaining, operating, upgrading or disposing of assets to generate value from them. The asset management process ensures that assets are used in the most effective and efficient manner. We achieve this with minimum risks and enhance the assets' performance attributes to ensure the maximum value. The people who manage the assets are called asset managers.

Asset Management was initially linked with managing financial assets. Today, it is widely used for managing different assets, including digital, infrastructure and IT. The purpose of the asset management function is to gain value from operating the assets, managing them effectively and disposing of them to earn profit. When multiple assets are in play, there is a greater need for efficiency and organisational accountability. Effective asset management enhances a company's reputation. It benefits the management, employees and customers. The value of underlying holdings or assets increases with proper management.

The following are the various aspects of asset management:

  • Overseeing various assets.
  • Making purchase decisions.
  • Organising maintenance schedules.
  • Conducting regular checks or scanning of items.
  • Gathering and analysing data from the above actions.
  • Taking management decisions based on the above.

A well-chosen asset management system ensures a steady stream of data. When assets are tracked in real-time, it encourages accountability and keeps department performance on the track. Inaccurate data is eliminated, and asset performance is properly monitored. Risk management and regulatory compliance are also improved.

Asset management is essential for the following reasons:

  • It helps businesses to keep track of their assets and enhance the efficiency of asset performance.
  • In the case of shared assets, proper asset management leads to a reduction in disputes over ownership or revenue sharing.
  • Health, safety, regulatory and legal requirements become easier to comply with.

Types of Asset Management 

We've come a long way from the times when assets only meant furniture, building and cash or cash equivalents. The term "asset" now encompasses a much larger variety of capital holdings with an organisation or individual. Following are the various assets that fall under the purview of asset management:

  • Financial Asset Management
  • Digital Asset Management
  • IT Asset Management
  • Fixed Asset Management
  • Enterprise Asset Management
  • Infrastructure Asset Management

The different types of Asset Management are summarised below:

Digital Asset Management

Digital Asset Management is a software system designed to centrally store and manage the digital assets of a business. Digital assets include documents, images, audio content, video content, animation, media files, graphics, presentations etc.

Internal and external stakeholders are given controlled access to digital assets through a centrally designed digital asset management system. In Marketing, digital asset management is used to optimise campaign management and ensure consistency of brand marketing. With Digital asset management software, users can create, organise, collaborate, distribute, store and measure performance. Digital assets are stored in specific electronic libraries. These systems have advanced search capabilities, such as the digital search for documents or images and the ability to retrieve digital files.

With the use of digital asset management software, users can gain access to the version history and file type of any of the aforementioned asset digital types. The digital assets can be uploaded on the internet to streamline the review and approval process. However, to maintain integrity, asset owners can set access levels and permissions for various contributors.

The key benefits of Digital Asset management include the following:

  • Organise the content in one system where all stakeholders can access their requirements.
  • Streamline the workflow.
  • Re-purpose the best-performing content.
  • Ensure brand consistency.
  • Align the work of content creators and publishers.
  • Make content available wherever it is needed.
  • Monitor content effectiveness.
  • Publish brand-approved content.

Fixed Asset Management

Any organisation has multiple fixed assets like buildings, plants and machinery, equipment and more. Fixed assets include long-term, tangible assets used in the operations of a business. These assets are held for a period of a year or longer. The financial accounting and preventive maintenance of fixed assets are undertaken under this facet of asset management. Thefts and pilferage are also reduced/avoided. Here, normally, the following tasks are performed:-

  • Oversee and track fixed assets.
  • Monitor fixed assets in multiple locations.
  • Minimise maintenance costs.
  • Increase the net output of fixed assets in operational activities.
  • Help to maintain an accurate record of fixed assets.
  • The following benefits are derived from Fixed Asset management:
  • It provides a centralised information system.
  • It helps in cutting operational costs.
  • It enables equipment maintenance.

IT Asset Management

Technological infrastructure is the backbone of any organisation today. We need IT systems to perform many business operations. In IT Asset Management, we manage an organisation's software and hardware assets.

Lack of proper ITAM results in limited asset visibility, erroneous inventory records, wasted resources, unnecessary service delays and hefty costs. Through IT Asset management, asset owners understand asset life cycles and asset utilisation. Trend identification, data analysis, and understanding of procurement routines are improved with proper IT asset management. We can efficiently manage all assets from a single platform.

The benefits of IT Asset Management include the following tasks: 

  • Saving costs.
  • Compliance with organisational policies.
  • Control of the IT environment.
  • Ensure greater governance and compliance in the organisation.
  • Resolve problems faster. 
  • Reduce risks and eliminate waste.

Enterprise Asset Management

Enterprise asset management combines services and software. We can control assets and equipment. Enterprise Asset management's goal is to use the organisational assets effectively. It enables cost management. Enterprise Asset Management manages productivity. We can reduce operational costs to enhance the bottom line. Enterprise Asset Management covers asset management, supply chain management and work management. 

The benefits of Enterprise Asset Management are -

1. We can increase the use of assets: We get real-time data from the IT systems to extend the reliability and life of the physical assets. We can initiate the necessary preventive maintenance activities. 

2. We can better manage ageing assets and infrastructure: We ensure better equipment life cycle management. We also establish better risk management in business processes.

3. We resolve various operational issues: We can keep operations stable and uninterrupted. We prevent all disruptions to organisational activity.

4. We can centralize asset information: All the managers are aware of asset locations. We ensure that critical asset workflows are properly maintained.

5. Consolidate operational applications across multiple teams: A singular asset may not be limited to a single use in the organisation. With enterprise asset management, organisations can ensure that assets are used to their maximum limit and that the entirety of an asset's uses are spread across various departments that might benefit from it.

Financial Asset Management

In Financial Asset Management, we deal with liquid assets. Liquid assets are those assets that we can easily convert into cash. These assets have a demand and supply in the marketplace. Every asset has an associated risk and expected returns profile. Asset managers deal with various assets, including equities, bonds, cash and cash equivalents. Commodities, currency, investments in mutual funds, ETFs and digital gold also fall within the ambit of financial assets. The main objective of financial asset management is to maximise the portfolio return of the underlying investments.

Asset managers also maintain an acceptable level of risk. Financial Asset Management is very important from the point of view of every individual and organisation. It plays an important role in long-term wealth maximisation. 

We derive the following key benefits of Financial Asset Management:

1. Specialised portfolio managers: These managers will create specialised investment strategies. They also help to control portfolio risk. We can enhance portfolio returns.

2. Fund managers can identify hidden portfolio risks: They research to minimise the portfolio risks and can ensure the stability and security of the owners' invested assets.

3. Benefits of specialised expertise in Financial Asset Management: Not all owners of assets are necessarily financially savvy, but they have various risk profiles. Asset managers ensure that the owners of the assets get maximum returns based on their risk appetite.

4. Benefits of automation: There are many Robo-trading applications in the market. They also provide investment recommendations. When using online trading platforms, operating costs are significantly reduced.

5. Protection in volatile markets: The fund managers provide proper diversification strategies among different baskets of investment and industry sectors. The asset owners' portfolios are protected from the downside. This is particularly useful when markets are trending downward. 

6. Benefit of easy liquidity: When funds are allocated to the proper assets, the owners get access to easy liquidity. These assets can be easily converted from financial assets into liquid cash during market stress.  

Infrastructure Asset Management

Infrastructure Asset management is a multidisciplinary strategy that manages the public infrastructure. Asset managers try to provide continuous service delivery from these assets. In Infrastructure Asset Management, the focus is on a continuous process aimed at infrastructure investment and acquisition.

Infrastructure assets are maintained and operated over their estimated useful life. In Infrastructure Asset Management, owners rely on an accurate information system to pinpoint the asset’s geographic location. Regular review needs to be conducted for maintenance purposes. Infrastructure asset management solves many systemic development challenges in today’s world. It adapts to social change, urbanisation requirements and natural disasters etc.  

The key benefits of Infrastructure Asset management include the following:

  • Infrastructure is the backbone of the economy that facilitates trade and creates economic opportunities.
  • It creates long-term financial viability for GDP-linked projects.
  • Sustainable infrastructure development helps in combating climate change.
  • It helps to use natural resources more productively.
  • Owners can generate operational and maintenance cost savings through this process.
  • Reduce future risks to the environment.

Assets under Management

Assets under Management refer to the total market value of the investments or assets that an organisation or individuals manage on behalf of clients. Assets under management can include all financial assets such as stocks, bonds, mutual funds, exchange traded funds (ETFs), cash, and bank deposits.

Owners of assets entrust their funds in the forms mentioned above to asset management companies. Sometimes, owners may also provide certain assets for discretionary management. In this case, assets under management will include only those baskets of assets entrusted to the portfolio manager. In the case of a company, the market value of inventory, plant and machinery, equipment, land and buildings, computers and IT software will be included under assets under management.

When evaluating assets under management, the size is an indicator of the quality of the management and a measure of performance. The higher the assets under management, the superior the management rating.

The size of the assets under management is a key determinant of management fees as well. An asset management company imposes these charges. If someone invests around ₹1 lakh with a fund management company, this will comprise a part of the total assets under the fund management. The fund manager can deploy such funds in purchasing the underlying assets of the fund and does not require additional permissions from the investors to transact and use the funds. 

Assets under management are calculated as the sum of the market value of all the underlying investments of the fund. Investor inflows into the fund are added, and outflows due to redemptions are deducted. Cash and Bank balances are also added to the total. The capital appreciation, dividends and interest will increase the assets under management. The Fund manager deducts asset management charges and other transaction fees.

In the case of a company, inventory is also a part of its assets. This is calculated by adding the opening balance of inventory and purchases and deducting the cost of goods sold of sales to arrive at the closing stock of inventory. Similarly, depreciation for the year and disposal of assets from gross assets are deducted to arrive at net assets. 

What does an Asset Management company do?

Asset management companies are investment firms that invest from the pooled funds of their clients. They allocate capital to work in assets like equities, bonds, real estate, mutual funds, ETFs (Exchange Traded Funds) and other financial assets. Mutual fund companies are also asset management companies which manage pooled portfolios. They create units for the investors in the fund.

Asset management companies are fiduciary firms held to a higher legal and ethical standard. Asset management companies have the advantage of accessing pooled investments of investors. They benefit from economies of scale. This also allows investors to engage using minimal capital. Investors can benefit from lower costs of asset management.

Asset management firms charge fees ranging from 1% to 3% p.a. This is in addition to transaction costs and other expenses. Asset Management firms employ equity analysts to perform equity or fixed-income research. This enables the portfolio managers of asset management firms to take informed decisions.

As mentioned before, portfolio managers have the authority to take investment decisions without seeking prior permission. Asset management firms provide their clients with greater portfolio diversification and multiple investment options. Investors can engage with a diverse basket of equities, fixed income or other asset classes. Discretionary asset management requires clients to invest larger amounts of funds. It is important to remember that using the services of an asset management company does not make an investor's portfolio immune to risk.  

The Bottom Line

Proper asset management is the key to the success of a mutual fund, an organisation or an enterprise. Asset management plays a key role in creating the appropriate investment strategy, better utilising scarce natural resources, minimising cost, or reducing risk.

Investors cannot underestimate the central role of proper asset management in all types of assets; physical, IT, software, digital, financial or intangible. An organisation or an enterprise’s success is achieving its business mission and goals by employing reliable and sound asset management principles.

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Deb P Samaddar

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If people could be named after idioms, Deb would be called "I'm all ears." His brain is a storehouse, ever overflowing with derelict information. So, while most things he talks about are as useless as occasion-less greeting cards, everything he writes has the potential of bagging you multiple diplomas!

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