Asset management is important for optimizing the use of assets throughout their lifecycle. Through better management of these resources, companies can observe when they are indulging in wasteful purchasing practices. They can also learn cost optimization.
In this article, we will go through the details of asset management. This will include learning about its objectives, methods, and types. Let us start with understanding what asset management is.
Table of Contents
What is asset management?
It is a systematic approach to increasing and managing clients’ wealth. Asset managers are the professionals who identify financial goals and employ strategies for achieving this goal. For this purpose, these professionals manage the investment portfolio of their clientele. They work on processes to acquire, maintain and trade potential investments.
Managers develop, operate, maintain, upgrade and dispose of assets. For this purpose, there are dedicated firms called asset management groups that cater to high-net-worth entities. These firms set a minimum investment threshold than brokerage. Instead of commissions, investment firms charge fees.
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Objectives of Asset Management
The following points state the objective of asset management:
- Serving the investment requirements of high net-worth entities.
- Realizing the value from responsible entities over the life cycle of tangible and intangible assets
- Building a well-diversified investment portfolio for clients to maximize their wealth
- Increasing the value of an asset while ensuring risk mitigation
- Understanding clients’ priorities to provide investment advice and strategies for improving their portfolios
- Guiding clients to help them in making better investing decisions and resolve financial challenges
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The following points enunciate the importance of asset management:
- Maximizing company assets to get the maximum ROI for the stakeholders
- Tracking, locating and determining the use and changes to assets
- Managing assets in an accurate manner so that management can create an accurate inventory report
- Ensuring that amortization rates and financial statements are accurate
- Understanding the potential capabilities of the assets for their optimized usage
- Eliminating the existence of ghost assets from the inventory records
- Through proper tracking of assets, firms can learn better techniques to acquire and utilize these resources. This prevents companies from unknowingly indulging in wasteful purchasing practices and utilizing funds for other business requirements.
- Companies are required to report how they have acquired, utilized and disposed off their assets. For this purpose, asset management helps maintain their comprehensive records, which allows companies to easily compile the data in a report.
- Organizations can formulate risk management practices since they have complete records of assets. This helps in adopting suitable risk mitigation techniques.
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Different Types of Asset Management
Different types cater to different industries as well as assets. Let us discuss these types in detail:
1. Action-Based Asset Management
In this categorization, there are two types of asset management.
1.1 Active Asset Management
It involves the analysis of political and economic data, market trends, and company-related news. In this type of active management, managers work on strategies that can generate greater returns. Many mutual funds use active asset management to increase returns. Here, asset managers track the performance of investment portfolios and make decisions about assets.
These professionals also work to manage risks, adhere to governance standards and limit the tax consequences. In active management, they use forecasts, research, investment analysis, and quantitative tools to make decisions for buying and selling assets. Recommendations based on this in-depth analysis are provided to clients.
1.2 Passive Asset Management
It is an approach in which portfolios similar to the market index are allocated. This also involves applying similar weighting as the market index. Here, the aim is to generate returns that are similar to the chosen market or sector index. It is also known as the index or passive investing.
As per passive management, at any point in time, markets incorporate and reflect information to render individual stock picking futile. This is known as the efficient market hypothesis. Unlike active management, it is less action-oriented and thus cheaper for investors.
2. Digital Asset Management
It is used for managing digital assets. These assets are any valuable resources that can be stored digitally and are owned by organizations. To assess their value, managers also refer to additional information called metadata. Files, documents, and digital media are examples of digital assets.
For the management of these assets, digital asset management (DAM) systems. These software store, share, retrieve and organize digital content in a secure and centralized location. Through this management, intended content is delivered to the right people in every device.
3. Infrastructure Asset Management
This involves sustaining critical public infrastructure assets such as nuclear reactors, bridges, railways, roads, sewer lines, and utility grids. Managers use software for organizing and implementing strategies.
This helps preserve the service life of long-term infrastructure that maintains the quality of life in society. It focuses on rehabilitation, replacement, and maintenance of infrastructure to improve the existing infrastructure quality.
4. Enterprise Asset Management (EAM)
It involves the maintenance of physical assets within the organization throughout the lifecycle of each asset. This is implemented for planning, optimizing, executing, and tracking maintenance activities associated with materials, skills, and tools.
Through EAM, companies can centralize entire asset information in one place. This allows easier monitoring and optimization of assets and maintaining them. Asset data can be integrated with maintenance processes for predicting and visualizing asset status.
5. Fixed Assets Management
It is a part of asset management for tracking fixed assets for preventive maintenance, theft deterrence and preventive maintenance. It helps companies in tracking, protecting and for accurately calculating the value of fixed assets. Organizations can keep balance sheet and asset records up to date. This helps in forecasting, budgeting and asset depreciation calculation. It also helps in machine underutilization and performance issues to increase asset utilization rates.
6. IT asset management (ITAM)
ITAM involves end-to-end management of IT assets by ensuring their proper usage, maintenance, upgradation and disposal throughout the lifecycle. Inventory, contractual and factual data is used for tracking these assets. As per the data, managers make strategic decisions about these resources to ensure that they are used efficiently. ITAM is useful in cost reduction and optimization since resources are now used in a better way.
Hope this article has helped you in learning about asset management in detail. By learning about its different types, managers can decide which one is a more suitable option for their client.
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