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Overview of Asset Management Firms

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A summary of the products and services offered by asset management firms. Based in part on material from my book: "Figuring Out Wall Street". One in a continuing series of overviews of financial …

A summary of the products and services offered by asset management firms. Based in part on material from my book: "Figuring Out Wall Street". One in a continuing series of overviews of financial services. We provide training targeted to the financial services industry. If you need training developed or delivered contact us for details of our services.

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  • 1. Financial Services Industry Training Introduction to Asset Management Firms Saunders Learning Group, LLC Saunders Learning Group, LLC, Andover, KS
  • 2. Training from Saunders Learning Group Saunders Learning Group provides a variety of training programs, workshops and seminars targeted to the financial services industry. Programs are available in a wide range of topics, and we are specialists in developing custom programs that are targeted to your needs. Contact the founder, Floyd Saunders at 316-680-6482 or at floyd@floydsaunders.com for more information. Saunders Learning Group, LLC, Andover, KS1
  • 3. Topics1. Asset Management Overview2. Functional Roles in Asset Management3. Investment management4. Trust services5. Private Banking6. Asset Allocation7. Alternative Investments8. Hedging Strategies9. Cash Management10. Pension Plans11. Mutual Funds12. Financial Planning Industry Saunders Learning Group, LLC, Andover, KS
  • 4. Module 1 Asset Management Companies Saunders Learning Group, LLC Saunders Learning Group, LLC, Andover, KSSlide 3
  • 5. Asset Management Industry An asset management company invests its clients pooled fund into securities that match its declared financial objectives. Asset management companies provide investors with more diversification and investing options than they would have by themselves. MutualFunction funds, hedge funds and pension plans are all run by asset management companies. These companies earn income by charging service fees to their clients.  Enrolling new investors in mutual funds or other investment products.  Advising potential clients in the range of investments and choices available  Distribute mutual fund information to a client and recommend the best investments for a client’s objectivesExample  Provide statements of accounts, annual reports, performance informationactivities  May manage investment accounts on behalf of customers  May participate in funding various investments on behalf of it’s investors.  Sets up and administrators various types of retirement accounts, unit investment trusts and other investment products.  May operate a hedge fund for a private partnership of investors  May operate a private equity fund to invest in companies, arrange mergers, buy-outs and other investments in corporations, including start-up funding. • State Street Global Advisers, Barclays Global Investors, JP Morgan, Vanguard, Example BlackRock, Bank of America, Goldman Sachs, JPMorgan Private Bank, T.Companies Rowe Price, BlackRock, Vanguard, PIMCO, and Fidelity are some of the largest financial management companies. Saunders Learning Group, LLC, Andover, KS
  • 6. How Asset Management Companies Work Asset management is in the business of using money to make more of it. Asset management companies manage the money of their clients to achieve specific financial objectives within guidelines under which an investment pool is organized. The pool might take the form of a mutual fund, hedge fund, retirement or pension fund, or other institutional fund and, depending on how the fund is organized. Asset managers could invest in any range of investment vehicles including equities, fixed- income securities, and derivative products such as options and futures. Economic crisis of 2008  After an average growth of 12 percent from 2002 to 2007 global assets under management fell 18 percent in 2008. Saunders Learning Group, LLC, Andover, KS
  • 7. Roles within the Asset Management Business Asset management of mutual funds requires an infrastructure that includes:  fund manager to manage the assets of a mutual fund  analysts to research equities and fixed-income investments  economists to evaluate the direction of the market and economy  salespeople and marketers to persuade people to buy the fund  traders to execute orders  accountants to track assets  tech specialists and back-office staff. 0r A retail stockbroker, financial adviser or asset manager working on behalf of their clients picks stocks, bonds, and other investments, determines the right portfolio mix, and executes trades. Saunders Learning Group, LLC, Andover, KS
  • 8. Primary Broker/Adviser Roles A Financial Adviser’s primary role is to acquire new clients, sell them a variety of products-from stock recommendations and mutual funds, to annuity-based life insurance. Institutional Relationship Manager - ensure that institutional clients of mutual funds or other institutional products are happy; they resolve issues, educate clients on products, and implement new processes. Relationship managers also advise and sell clients new products. Institutional Sales Manager - call on pension funds, union plans, banks, and other institutional clients and sell them funds, back-office products, or other products. Private bankers offer financial services and advice to wealthy individuals. These bankers are often highly specialized and carry multiple degrees. Private banking units usually charge their clients a fee for their services based on a percentage of assets under management. Private bankers typically have at least five years of professional experience as well as professional degrees. Saunders Learning Group, LLC, Andover, KS
  • 9. Primary Roles in Asset Management A Fund Manager is the person(s) responsible for implementing a funds investing strategy and managing its portfolio trading activities. A fund can be managed by one person, by two people as co-managers and by a team of three or more people. Fund managers are paid a fee for their work, which is a percentage of the funds average assets under management. A financial analyst researches companies to determine it’s financial condition and will make recommendations to buy or sell a company’s stock based on economic conditions and the predicted earnings/financial strength of a company. An economist provide an opinion on the future of the market and general economy based on financial and economic models that you develop and maintain, third-party models and analysis, and analysis of global and domestic news and economic indicators. Saunders Learning Group, LLC, Andover, KS
  • 10. Investment Management Discretionary Asset A Discretionary approach means that, having agreed the strategy, you delegate Management the day-to-day investment decisions relating to your portfolio to an investment Asset manager. This is ideal if you don’t have the time or resources to commit to researching and monitoring Allocation and the global financial markets yourself. Investment Strategies Alternative Asset Allocation - A portfolio strategy that involves periodically rebalancing the investments portfolio in order to maintain a long-term goal for asset allocation, where investments are held in a mix of stocks, bonds, cash, commodities or alternative investment. Alternative investments include hedge funds, managed futures, real estate, commodities and derivatives contracts. Most alternative investment assets are held by institutional investors or accredited, high-net-worth individuals because of their complex nature, limited regulations and relative lack of liquidity.Link to 70 minute presentation on investment management @ Yale:http://openmedia.yale.edu/projects/media_viewer/video_viewer2.php?window_size=medium&type=flv&title=ECON%20252%20-%20Lecture%209%20-%20Prof.%20Robert%20Shiller&path=%2Fcourses%2Fspring08%2Fecon252%2Fflash%2Fecon252_09_021308 Saunders Learning Group, LLC, Andover, KS
  • 11. Personal Trust Services Trust and  Trust & Estate Planning Estate A trust is a relationship where one party ("the grantor") gives fiduciary control of property to another party (a person or an institution, "the trustee") for the benefit Planning of another ("the beneficiary"). Custody The trustee (Bank trust department) administers and controls the assets of the trust according to instructions found within the trust document. IRA  A personal trust can be used to: reduce estate taxes, as a tool for protecting the Administration assets of your estate, to ensure the proper distributions of assets to beneficiaries, to provide support for your spouse and children. Will  Some of the services offered by a Trust Company include: appointments  Living Trusts – A document that directs an trustee to managed investments for the trustor while the trustor is still alive. This allows you to avoid probate and allow for the distribution of assets Foundations quickly after death.  Revocable Trust - A trust that may be altered or terminated during the grantors lifetime. Since the and Charitable trust can be altered, it is part of the estate and subject to taxation. Trust  Special Needs Trust - A specialized legal document designed to benefit an individual who has a disability and allows for the payment of benefits from government programs.  Testamentary Trust - A trust created by the terms of a will, with the executor as trustee, for the benefit of someone else (spouse, child etc.)  Dynasty Trust – A trust in which assets are controlled through several generations and makes use of generation-skipping tax exemption.  Life Insurance Trusts - An irrevocable trust set up with a life insurance policy as the asset, allowing the grantor of the policy to exempt asset away from his or her taxable estate. Saunders Learning Group, LLC, Andover, KS
  • 12. Personal Trust Services Custody  Custody - A service in which a brokerage or bank holds securities on behalf of the customer. In addition to the safekeeping of assets the bank as custodian can sell the asset as directed by the customer.  IRA Plan Administration - A group of services providing complete administrative, IRA operational, and compliance support for individual retirement accounts  Tax Reporting – Produces and mails tax information to IRA owners and the IRS Administration  Periodic Payment Notification and Calculation – Notifies you of IRA owners nearing critical ages to elect payment options  Death Benefit Claims Processing – Informs you and beneficiaries of payment options, and notifies you of how and when to disburse assets. Will  Will Appointments – Arrangements were a trust department is appointed as the administrator for a person’s will. The trustee will act to distribute assets according to the Appointments provisions of a will, pay final expenses and file tax returns. Will appointments often include arrangements for the creation of a trust to continue to manage assets for the benefit of beneficiaries.  Foundations – A legal categorization of a nonprofit organization set up to support specific causes or charitable purposes. This type of non-profit organization differs from a private Foundations and foundation, typically set up to provide for a family or individual. Charitable Trust  Charitable Trusts - Trust created for advancement of a specific cause and can be funded to exist pass the lifetime of the person creating it or funding. Generally exempt from taxes. Saunders Learning Group, LLC, Andover, KS
  • 13. Private Banking Also referred to as Wealth Management services Personalized financial and banking services that are traditionally offered to a banks rich, high net worth individuals (HNWIs). For wealth management purposes, HNWIs have accrued far more wealth than the average person, and therefore have the means to access a larger variety of conventional and alternative investments. Private banks aim to match such individuals with the most appropriate options. Private banking offers an array of deposit and cash management services, along with residential mortgages, specialty lending and other custom financing solutions to help you:  Manage your assets and liabilities  Provide the liquidity you need for important investments  Liquidate a concentrated stock position tax-efficiently  Fund short-term cash flow needs  Obtain financing for major purchases such as private aircraft and yachts Saunders Learning Group, LLC, Andover, KS
  • 14. Asset Allocation Asset Allocation – Review, analysis and management Strategic Allocations Tactical Adjustments tactical underweight strategic overweight Build portfolios based on Further adjustments are made strategic risk and return assumptions and models. based on short-term insights. Asset allocation does not ensure profit or protect against loss.When an asset class is overweighted, other asset classes are underweighted by a compensating percentage so that the total allocation remains 100%.. Saunders Learning Group, LLC, Andover, KS
  • 15. Alternative Investment Strategies MARKET ANALYSIS SPONSOR ANALYSIS PRODUCT ANALYSIS  Investment Team  Investment Process  Current Market Dynamics  Financial Health of Sponsor  Risk Disclosure  Regulatory Environment  Experience, Track Record  Legal, Compliance Issues  Track Record  Market Participants  Organizational Alignment  Return Potential  Risk Profile Private Equity Hedge Fund Strategies Real Estate Structure Products Global Buyout Event Driven Trend Core Principal Protected Distressed Real Equity Long Managed Opportunistic Return Enhanced Estate Short Futures Mezzanine Absolute Return Multi-Strategy Value-Added Bull/Bear Saunders Learning Group, LLC, Andover, KS
  • 16. Hedging and Monetization Strategies Hedging Monetization Diversification Option Strategies Hedging + Margin Loan Private Exchange Fund Single or Multi-Investor Pre-Paid Forward Sale Sale of a Call Option Contingent Forward Sale Securities Law Regulatory Tax Issues Implications Client Equity Deal Derivatives Structuring Equity Trading Saunders Learning Group, LLC, Andover, KS
  • 17. Cash ManagementFORMULATEINVESTMENT DEVISE A STRATEGY EXECUTE MONITORPOLICYClient Interest Rate Yield Curve Sector Security BenchmarkingObjectives Management Management Allocation Selection & ReportingUnderstand Needs Establish Determine Identify Relative Identify and Capture Select Appropriatefor Return, Liquidity Investment Policy Positioning on Yield Value Between Value Between Index / Benchmarkand Preservation of Parameters Curve Sectors Alternative Conduct PeriodicCapital Investments Adjust Portfolio PerformanceDefine Investment Maturity Profile Forward Break- Monitoring Yield vs. StabilityGoals, Acceptable Based on Interest Even Security Analysis Provide FullInvestments, Rate Outlook Analysis Taxable vs. Tax- CompliancePortfolio Limitations, Exempt Execution ReportingResponsible Parties Horizon Roll-Downand Authorized Analysis Provide MonthlyBroker / Dealer / Reports ConformingBank Spread Analysis to Month EndIdentify andScheduleAnticipated CashOutlays Saunders Learning Group, LLC, Andover, KS
  • 18. Corporate Consulting Type of Fund Key Services  Asset / Liability Studies  Asset Allocation Advice Defined Benefit Plans  Traditional and Alternative Investment Manager Search Capabilities  Performance Measurement Reports  Trust and Custody Services  Bundled Platform Services Defined  Investment Consulting for Fund Lineup Contribution Plans  Lifestyle Funds and Automatic Enrollment  Personalized Asset Allocation Advice for Plan Participants Foundations and  Investment and Spending Policy Statements Endowments  Traditional and Alternative Investments  Board Member Communications Family Offices and  Specialized services for high net worth families including all Private Individuals of the above and art advisory, private banking, aircraft leasing and other capabilities Saunders Learning Group, LLC, Andover, KS
  • 19. Pensions  Definition: A pension plan is an asset pool that accumulates over an individual’s working years and is paid out during the nonworking years.  Developed as Americans began relying less on children for care during their later years.  Also became popular as life expectancy increased.  Pension and retirement plans are available in a number of types that are known as either defined contribution or defined benefit plans. Saunders Learning Group, LLC, Andover, KS
  • 20. Types of Pensions Defined-Benefit Pension Plans: a plan where the sponsor promises the employee a specific benefit when they retire. For example, Annual Retirement Payment = 2% average of final 3 years’ income years of service Defined-Benefit Pension Plans place a burden on the employer to properly fund the expected retirement benefit payouts.  Fully funded: sufficient funds are available to meet payouts  Overfunded: funds exceed the expected payout  Underfunded: funds are not expected to meet the required benefit payouts Saunders Learning Group, LLC, Andover, KS
  • 21. Types of Pensions  Defined-Contribution Pension Plan: a plan where a set amount is invested for retirement, but the benefit payout is uncertain.  With this plan the employee’s benefits during retirement depend on the contributions made to and the investment performance of the assets in his or her account, rather than on the employee’s years of service or earnings history.  Private Pension Plans: any pension plan set up by employers, groups, or individuals  Examples of defined-contribution plans include 401(k) plans, 403(b) plans, and 457 plans  Public Pension Plan: any pension plan set up by a government body for the general public (e.g., Social Security) Saunders Learning Group, LLC, Andover, KS
  • 22. How a Pension Fund Works The plan administrator may be an asset management company, bank, or insurance company. Saunders Learning Group, LLC, Andover, KS
  • 23. Investment Companies• The investment company sells shares to the public and invests the proceeds into a diversified portfolio of securities  A Mutual Fund is one type investment company.• Investors pool their capital and delegate the investment decision to a central authority• The central authority making the investment decisions earns a fee for their service Q: What exactly are the services offered by this central authority? Saunders Learning Group, LLC, Andover, KS
  • 24. Difference between Banks and Mutual Funds Banks Mutual FundsLeverage Banks have leverage – can borrow funds at Have no debt in their capital structures – cannot a fixed rate of interest borrow fundsIncentive Investment quality is signaled through the Managers collect fees and do not own equity; There market value of equity. Banks risk (invest) is no incentive alignment with investors based on their own capital (borrowed from performance of the investments. Profits and losses depositors at a fixed rate) which gives them are simply passed through. strong incentives to invest wiselyTransparency Investments (loan portfolios) are opaque Investments are relatively transparent, with investment advisors required to list their portfolios at certain intervalsTypes of Banks cannot invest in equity securities – Mutual funds do not negotiate loans. They mayinvestments conflicts of interest may develop purchase loans if securitizedOwnership Managers of the firm can also be owners Mutual Fund managers cannot invest in their own (stock and/or options) which promotes fund, and since they do not risk their own capital, incentive alignment are not incentive aligned. Saunders Learning Group, LLC, Andover, KS
  • 25. Open-End Investment Companies or Mutual Funds An open-end investment company is commonly called a mutual fund and is the most common investment company. These funds are open to new investment. New investor proceeds are exchanged for new shares in the fund, and are invested in the portfolio. A mutual fund has no limit on the size of the fund or the number of shares outstanding. The value of a mutual fund share is called its net asset value. Mutual fund shares are not sold in the traditional sense. Instead, they are redeemed by the fund management.  Investors buy-in at the Net Asset Value (NAV)  NAV = Market value of the portfolio - Liabilities  Shares outstanding  The market value is easy to calculate at any point in time if the underlying securities are traded in liquid markets (particularly true for an equity fund),  However, investment companies do not real-time mark to market  For most funds and investors, there is a 1:00PM commitment to purchase shares, but at the 4:30PM NAV (market close)  Fund size is determined by:  The change in value of investments  Net flow of funds -- buy-ins (+) and redemptions (-).  If a fund is performing well, then its growth through Net New Flow of Funds will likely be bigger than the growth through changes in Investment value (Don’t confuse fund growth with return!!!). Saunders Learning Group, LLC, Andover, KS
  • 26. Financial Planning IndustryFunction  Provides banking and other services to clients with varying amounts of money to invest  Handling client requests, e.g. investment advice, buying or selling a certain stock or bond  Prospecting clients (usually through "cold calling") Examples:Example  Call all the lawyers at a particular law firm to see whether any are interested inactivities opening up an account  Buy 500 shares of Procter & Gamble on a client’s behalf  Distribute mutual fund information to a client and recommend the best investments for a client’s objectives  Inform the client of new products (such as different types of insurance or annuities) that the brokerage is offering that could be useful in attaining certain financial goals Example  Smith Barney, Charles Schwab, Morgan Stanley, Fidelity, Raymond James, Ameriprise, American Express and a host of independent firms.Companies Saunders Learning Group, LLC, Andover, KS
  • 27. Questions Saunders Learning Group, LLC, Andover, KS
  • 28. Post Workshop Action Plan  Complete the Post Workshop Action Plan Saunders Learning Group, LLC, Andover, KS27
  • 29. Thank You !Saunders Learning Group, LLCSaunders Learning Group, LLC, Andover, KS
  • 30. About the Author/Presenter  Floyd Saunders has worked on Wall Street with both Bank of America and JPMorgan, where is was a vice president in global financial systems. He has worked across the industry in retail, commercial, and investment banking.  He has taught courses in Money and Banking and extensively for the American Institute of Banking and various colleges.  As a consultant, he developed and taught a wide range of banking and investing courses.  He authored three programs for the American Bankers Association: Banking on Mutual Funds and Annuities, Introduction to Securities Markets and Investing in Securities.  He is the author of “Figuring Out Wall Street” and his next book is “Family Financial Freedom” a book on personal money management. Saunders Learning Group, LLC, Andover, KS
  • 31. Reference Material Figuring Out Wall Street Consumer’s Guide To Financial Markets By Floyd Saunders Publisher: Saunders Learning Group ISBN: 978-0-9824019-0-3 Available from Amazon: http://www.amazon.com/Figuring-Out-Wall-Street- Consumers/dp/0982401906 and many other online book stores. Book summary: Figuring Out Wall Street, is the concise guide to help everyone understand how what to do now to restore our financial systems. Written in an easy to understand manner, even the most complex financial concepts are easy to digest. This book provides help to monitor investments with a review of investment products, financial regulators and economic indicators. Learn how the stock market exchanges work and the world of investment banking, hedge funds, venture capital and private equity. Every chapter includes action plans for investing. Saunders Learning Group, LLC, Andover, KS