Ensuring consistent returns in the midst of volatility in the market.

People across the world are interested in using their income to make healthy returns. It is when these returns become volatile and increase their exposure to a loss that people start getting scared. Financial institutions, globally, have started utilising asset and liability management techniques to come up with ways to ensure consistent returns with low risks. One of the ways they do that is by encouraging investments in long-only funds. Also known as absolute return funds, they take only long positions and try to seek undervalued securities during a bearish market and stay invested throughout the ups and downs of the market. These funds use options, futures and other derivatives to limit their exposure to risk. Unlike traditional funds, these funds only pursue strategies that will produce positive returns, despite the position of the benchmark index.

Unlike traditional asset and liability management companies which are governed by regulatory bodies such as SEBI, it is usually the hedge funds who depend on long-only funds to ensure steady returns with lower risks.  Hedge funds do not fall under the regulations stipulated by SEBI since they are unregistered private partnerships and can trade in various different markets using different strategies to diversify their exposure to risk. Although, they do operate in ways similar to other investment companies by pooling investments from independent investors who are willing to believe in their strategy.

With long-only funds, the investors are willing to ride the highs and lows of a market in the hopes of making heavy returns in a distant future. Over the last few years, these funds have generated healthy returns over a consistent period of time, which has encouraged several other investors to include the long only strategy in their portfolio. Owing to this success, several fund managers who have clients that are willing to preserve their capital over a longer period of time are using this technique to perform better asset and liability management and produce actual returns.

Why are investment banks needed? Who can avail their services?

The origin of banking can be traced back to England, where the goldsmith bankers from the 17^th century acted as the custodians of the majority of people’s money in the country. This format of banking further started spreading across the world during the colonial times and gave birth to the new form of banking as we know it today. Public banks take care of the short-term financing requirements and is open to the general public. Investment banking, however, is different. They take care of the long-term finance requirements, provide financial capital required, and are not open to the general public. Investment banking companies, therefore, came into existence when businesses started requiring higher capital with a longer lease on their returns on investment and have started providing a plethora of new services as well. In modern times, their primary role is to raise debt and equity funds and help companies expand their own business and the business of their clients as well. The clients of these investment banking companies include public sector companies, private sector companies, HNIs and Ultra HNIs.

Anyone that requires to use the following services, can get the help of an investment bank:

To raise capital – Any association of people when express their interest to serve the general public and register themselves as a company to do so, will require capital. Any existing companies that hope to upgrade their services, open new branches, start new projects, want to acquire a new company or merge will need investment banking services. These companies will raise capital in the form of debt or equity and help their clients achieve their goal.

Stock trading and sales – Investment banking services are also availed by companies who are looking to divulge in stock trading or those who want to short securities. They also help in areas of placing a new stock, marketing securities, conducting a market research, publishing and reporting.

Advisory services – In the modern world, investment banking companies have started providing supplementary services to their clients such as business valuation, strategic planning, restructuring of finances, analysing assets, etc. Any service that can help their client perform their business activities smoothly are now being performed by several big-time and small-time players.

What is venture capital and how does it work?

In simple terms, venture capital is the kind of financing in which the capital is invested in a company, which is usually either a small business or a start up (basically something that is in need of the money) and this is done in exchange for the equity in the company. This is also quite a major subcategory of a quite larger and a much complex part of the landscape of finance which is also known as the private markets. Venture capital is the sum of money that gets invested in a business in its early stages, the growth stage of any kind of business or company.

It is important to remember that venture capital funding is not given to just any business. It is given to only those that shop an exceptional growth potential or to those businesses that, in the recent past, have shown a very quick growth and also show proof of how they are going to quickly expand.

Amongst financial advisory services will tell you as an investor that it is a very risky thing to invest in venture capital. However, it is also true that this is becoming an increasingly popular concept and even essential in a way which is becoming a source for raising money if they lack access to capital marketing, loan instruments and so on. Investors usually get equity in the company and hence, also a good say in the decisions that the company makes and that is an added advantage.

In a way, the concept of venture capital has evolved from quite a niche activity after the Second World War ended as it is in a sophisticated industry with multiple people and players which also play a crucial role in inciting innovation.

Therefore highlighting the importance of venture capital funding.

How does asset and wealth management help in crisis?

The year 2020 saw a lot of crisis in terms of finance. Due to the pandemic, businesses all around the world took a major hit and many of them had to bear extreme losses or they had to even shut down their businesses and file for bankruptcy. But yet there were some businesses that did manage to remain afloat despite all the crisis that happened and these are the ones who had taken the proper help from the major finance companies in India for their investments and more. Depending upon the service that you have chosen, as a business owner, you will be allotted a manager for the same. You will be assigned an asset manager if you are wanting to get asset and liability management done, wealth manager if fund management is what you are looking at.

A wealth manager usually guides you according to the business goals that you have set for yourself and the business. A good wealth manager would be the one that helps their clients in reaching their financial goals in the stipulated time and also in achieving much more than what they are setting for themselves. The wealth manager closely understands and follows the trends in the economy and accordingly decides on behalf of the investor.

It is also their job to help you understand various concepts of finances. A common person might not always know what hedge funds are, and what their function is. It is on the finance manager appointed by the company to the business who helps their client get hands on with these terms and what they do. If you are looking for the correct kind of finance company, you can read up online on various websites that could have recommendations on which is the best ones you should go for.

What makes ESG funds the next big thing in India?

While the ESG funds might be a relatively new concept in India, it actually is slowly catching up with the different financial advisory companies such as asset and liability management firm, and investment banking companies in India. But one might wonder what exactly the ESG funds are and rightly so. ESG is the short form for Environment, Social and Governance, the three key areas and factors that one needs to keep in mind when expanding their business. A way of giving it back to the factors that contribute to your business growth.

The concept of ESG funds is way different from the long-only funds that you hear about. The ESG funds are more relevant when it comes to bigger corporations of business and it has become a criteria for investors to judge whether they should be investing in the said big business or not. The factors include how much they actually are taking care of the environmental issues, whether the employee happiness is taken care of and supported and of course, whether the governance is done keeping in mind all the law and whether all the conflicts that arise are being taken care of the way they should be.

When we talk about the social factors, it also includes the kind of relationship that is maintained with the suppliers, traders, the vendors as well. Here, the happiness quotient of the employees is seen and based on which, we get a fair idea about whether the investors would be ready to invest.

When choosing any financial advisory services, like any of the asset and liability management firms, we usually exercise caution. But when it comes to handling the business as a whole, it actually needs to be properly studied, researched and only then can it really be hired for their future services for our business. You can look up various different articles online for the same.