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Asset Management Previous financial goals achieved by your future asset management team need closely read. If the team has changed greatly (high staff turnover or changes to the team), then arguably the performance record is completely unrelated to the existing team (of fund managers). A graduate degree or an investment certification such as Chartered Financial Analyst (CFA) or Chartered Alternative Investment Analyst (CAIA) may be required to move up in the ranks of asset management. According to financial theory, equities are riskier (more volatile) than bonds which are themselves more risky than cash. Asset classes exhibit different market dynamics, and different interaction effects; thus, the allocation of monies among asset classes will have a significant effect on the performance of the fund. Above-average fund performance appears to be dependent on the unique skills of the fund manager; however, clients are loath to stake their investments on the ability of a few individuals- they would rather see firm-wide success, attributable to a single philosophy and internal discipline; The most successful investment firms in the world have probably been those that have been separated physically and psychologically from banks and insurance companies. An institution believes it has done well if it has generated a return of 5% when the average manager (usually culled from amongst its peer class) generates a 4% return. Assets of the global fund management industry increased for the third year running in 2006 to reach a record $55. A good asset management team measures the return of a portfolio in excess of the risk-free rate, compared to the total risk of the portfolio. Over a 10+ years period in most countries, equities have generated higher returns than bonds, and bonds have generated higher returns than cash. The 3-P's (Philosophy, Process and People) are often used to describe the reasons why the manager is able to produce above average results. You always need to be kept up to date by your team. A typical case for an equity fund would be to calculate every quarter and would show a percentage change compared with the prior quarter. Investment managers who specialize in advisory or discretionary management on behalf of (normally wealthy) private investors may often refer to their services as wealth management or portfolio management often within the context of so-called "private banking". Under the remit of financial services many of the worlds largest companies are at least in part investment managers and employ millions of staff and create billions in revenue. Multi-factor models were developed as an alternative to the CAPM, allowing a better description of portfolio risks and an accurate evaluation of managers� performance. There is evidence that growth styles (buying rapidly growing earnings) are especially effective when the companies able to generate such growth are scarce; conversely, when such growth is plentiful, then there is evidence that value styles tend to outperform the indices particularly successfully. It is important to look at the evidence on the long-term returns to different assets, and to holding period returns (the returns that accrue on average over different lengths of investment). "Philosophy" refers to the over-arching beliefs of the investment organisation. For example, does the manager buy growth or value shares (and why)? One question you should always ask yourself is, how deep is the team (and do all the members understand the philosophy and process they are supposed to be using)? We have to distinguish between normal returns, provided by the fair reward for portfolio exposure to different risks, and obtained through passive management, from abnormal performance (or outperformance) due to the manager�s skill, whether through market timing or stock picking.
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