The role of an asset management company in brief

While both investment banking and asset management are important for the financial growth of a firm and of any business, both these verticals have some key differences. We shall be exploring the same today, although stressing more on the functions of any asset management company. One of the major functions of the asset management companies is that they become an intermediate not just for individual clients and households, government or big business firms. But they also help other categories, more specifically insurance companies and pension funds. As the financial companies or institutions that direct or influence the decisions for investors who choose to get professional help in managing their clients, the asset management company becomes an important buy side institution type.

Another major function of the asset management company is allocation of funds and assets. The mutual funds that everybody talk about comes with a specific aim in the financial terms, which would help the asset manager (on behalf of the client) to decide by shortlisting the best assets to invest in in terms of the returns they are known to give. They are so many funds that are debt oriented that do not put any more than twenty percent of assets in any inequities of undermanagement. A fund that is balanced, could invest 60 percent of asset inequities. This forms one of the crucial decisions that an asset manager you hire needs to make. On the other hand, when it comes to investment banking, the investment banking companies focus on raising capital or finance for their clients, who may be individual, governmental, large sized private firms or so on.

Asset management also involves a lot of R&A, that is, Research and Analysis. The asset manager needs to carefully study and analyse the current market situation, micro plus macro-economic aspects and even the performance of various funds that they advise their clients to invest in.

What is credit management and how does it help a business?

Credit management is a very old concept in the financial history. Its literal definition means a process or a function that puts together, a company’s activities and aims at making sure that the customers in reference pay their respective invoices within the said terms and conditions. Basically, it is a way of granting credit, plus making sure that the said payment is collected as an when an invoice is due. A credit management that is reliable and good is often the one that encourages a dialogue between the sales and finance teams in order to strike a balance between minimalised risk and maximised opportunities. It is a very common practice amongst businesses that deal with other businesses to have trade on credit, not just for the convenience attached to it, but also because it is broadly accepted that offering credit is necessary for building good businesses relationships and at the same time, developing new ones. Most businesses state that having trade of credit is more convenient.

You could hire a professional financial service provider, who would look into hedge funds, your credit management, asset management and wealth management too. From the above stated discussion, it is clear that trade credit is a very important business too. to customers, companies allowing a payment window of 30 days after delivery are more attractive than those who demand on the spot payment. However, the businesses should remember that more the number of days given of extended credit, greater is the risk of non-payment, which could actually prove a tough sport between the growth and downfall of a business, if the payment doesn’t occur on time. therefore, it is very necessary that the business finds a good balance on the extended credit period and function accordingly. They should not get into risks by the mere purpose of looking attractive to customers.

How do asset management firms guide a business in investment?

Every growing company at some or the other time in their journey need financial advisory services. These financial services help them navigate through their journey of investment, tackling liabilities, acquiring new businesses and so on. You can hire these services basis the size of your company, and your business. For example, a mid-sized firm or an MSME might not be able to hire the top most financial company. 

However, on doing a good research and gathering reviews, you might be able to find out some good and decent firms. If growing your assets is what you are looking for specifically, then you can go to hire one of the best asset management firms as per your business requirements. The firm will then assign an asset manager to you, who will be responsible for guiding you through further investments as well. They do a thorough study of your financial portfolio, figure your current state of assets, liabilities and credit. 

Then, they enquire of you the goals that you have set for the coming years. Once all this is done, they then help to chalk out a very reasonable plan for your business’s financial journey ahead, especially the investments that are to become assets in near future. Some assets are tangible (which can be seen and felt) and others are intangible (one that is only seen on paper in numbers). The investments that an asset manager does on your behalf could be a combination of these two types of assets. These assets could be either long term or short term assets. Long term assets reap benefits after a couple of months or years. The short term assets such as stocks and shares show us results in just a few days or so. Therefore, assets can be of various types. What matters is how they are well invested and what they get for your business.

What next for your business after the pandemic?

Credit management is a subject that has been doing many rounds lately. The global pandemic of COVID-19 has made it very difficult for even the top asset management and investment banking companies in India and all over the world to actual carry out their day to day operations. Plus, with every industry currently only seeing a downfall in their profits and their earnings as well, the world is bracing itself for the tough recession that is going to follow. It has also become very crucial for investors to keep their spending and investment limited, so that there is no further damage done to their business. When the lockdown around the world lifts at a gradual pace, we are going to witness the slow emergence of the world economies and how they cope up from the hit and blow that hit them. Investment too, is going to see a dry state in most industries for a very long time. So, what can you do, as a business owner to be ready to face what is coming? Firstly, having faith in the business is very important. You might even have to take some tough decisions for the sake of your business but remember that it is all going to be to keep your firm running. Secondly, start venturing out of your business’s comfort zone, once your profits become steady, so that, if at all in future, go forbid, such a situation arises, you are ready to face it. This means that you need to increase your backbone, investment in your assets and also invest smartly in other businesses. You may hire an asset management firm that will help you in this venture. An asset management company would also help you to navigate through all the investment decisions you plan on taking and advice you on what would be more profitable for your business.

What role is asset management playing in keeping businesses afloat?

Even the top asset management companies in India cannot provide a solution to you, if you do not seek to invest your money in a responsible way. For the flourishing of your business, you cannot rely on just liquid savings that are dying to come out from your bank account. You will have to cautiously invest that money into something more meaningful that will give you the benefits in future. We are talking about investing in assets. An asset is a priced possession that can be redeemed or lied back on in worst case scenarios for the business. If you consider the current situation of COVID-19, you will notice that most business all over the world are going to take a hit in their earnings for a pretty long time. This in turn is going to affect their long-term savings as well. But on the contrary, those businesses that were far sighted for any such kind of business calamity to arise, had already planned their investments in assets. These assets can prove to be life jacket, if not a life boat to the business that’s just going down. Bigger businesses too are taking great hits and these hits are in hundreds and thousands of crores. Naturally, the focus on ESG funds in India and around the world would be shaken right now. However, the companies should as a moral obligation and duty, not forget about it. ESG funds are the Environmental, Social and Government funds, that help a business gain credibility and gives the investors a peek into how the business is being carried out, whether or not ethics are being followed and if it would be fruitful for them to invest in the business now. Although the top most asset management companies require their clients to bring in big business, there are other companies that deal with midsized businesses too.

Investment in mutual funds

We have all heard about mutual funds some or the other time. we were either taught about it in our economic class, got call from a bank’s call centre to invest in them, read about it in the newspaper and some magazines, heard it as a radio jingle or watched it on TV with the usual “Mutual funds are subject to market risks…”.  But what exactly are these funds that people keep talking about? Are there any other funds that are available to the business to invest in? let’s find out today.

First of all, mutual funds are no second to assets. How much money you invest in the mutual fund depends completely on you. It is like a pool of money from many investors (small to big sized) which is invested in some fluctuating market players like shares, bonds and securities, money market instruments and so on. This is not just a single fund in itself. There are seven different types of mutual funds too which are available. 

Long short fund is also one of the rest. Others include equity funds, money market funds, fixed income funds, index funds, balanced funds, and speciality funds.

For businesses, there are ESG funds, that a business invests into, for better functioning of their staff, establish strong relations with the buyers and suppliers, and also to ascertain investors or potential investors that every transaction that is being carried out in the business is only through ethical means.

In the long run, funds become a huge asset for any individual or a company that owns a business. Although their value hugely depends on the status of the market. For example, due to COVID-19, most businesses are seeing their shares to be down, as a result, the current valuation of mutual funds isn’t that great a picture. But eventually, when markets start to rise, this picture will slowly change and show benefits too.

What after COVID-19?

The investment banking companies in India and all around the world are facing a large problem of COVD-19. The pandemic has hit not just the health care around the world but has largely affected the economy around the world. Countries having to take loans from the International Monetary Funds as an extra aid to the health care facilities and to keep the economy floating for a bit. With tons of businesses in lockdown, most people aren’t even getting paid. There is no cash flowing in the economies. In such a scenario, there can’t be any focus on ESG funds in India or anywhere else in the world. 

Once the lockdown if lifted gradually, it is going to be a great uphill task for investment banking companies to get their client’s business back on track. For a long time, there won’t really be mergers or acquisitions, since most businesses (if the giant ones), would be looking to sustain themselves and get most out of their present human resource. With such great recession foreseen in near future, the investment banking companies are going to have to find new ways of actually helping their clients in getting through these financially tough times. A pandemic that the world did not see the decades, has hit business corporations all around the world. A lot of industries are going to be vastly affected in the near future. Industries such as travel and tourism, hotel, entertainment are going to be some of the worst hit. With people reluctant to travel and go anywhere out, it is going to be extremely difficult and a long journey towards normalising all of the above once again. In such times, the businesses and the business owners will have to keep a lot of patience and brace themselves for the blow that is bound to come their way.