Everything you need to know about asset and liability management

Financial terms like assets, liabilities, investments and more can be scary and confusing to understand. Manoeuvring the world of finance is scary mainly because each business decision can have a big monetary impact, whether for good or for bad. This is why it’s okay to take your time and learn the basics before jumping into the more complicated terms. Before understanding the concept of asset and liability management, let’s first understand what exactly asset and liability means.

 

In simple terms, an asset can be defined as anything which is of value that can be converted to cash. Assets can be tangible or even intangible. Furthermore, these assets can be divided into the categories of current and fixed assets. The correct value of a company’s asset is recorded in the balance sheet of the company. On the other hand, liability is something that a person or company owes to another entity. It is the financial obligation of a company over another. It is legally paid to the person in the future, either in the form of an asset or service.

 

Asset and liability management means managing the financial risks of a company that can arise due to a mismatch in the company’s assets and liabilities. It is a practice of maximizing profits and mitigating risks of liquidity and change in interest rates. While traditionally, finance companies in India only concerned themselves with liquidity and interest rate risks, the concept of asset and liability management has now broadened to include foreign exchange and capital market risks as well. ALM is adopted across various financial organizations including banks, insurance companies, asset managers and more. Adoption of ALM can help organizations prepare for future risks in a better way. This is because they’ll be in a better position to manage their liabilities strategically. More and more companies today have adopted ALM strategies with the help of financial firms and consultants.

Understanding hedge funds

Time and again, we have been hearing about different kinds of hedge funds whenever someone talk about investment. Let’s look into and try understanding what hedge funds actually and what they do. A hedge fund is nothing but an avenue of investment where pools of investments from different investors is formed and then invested in different financial products. This is done by putting the risk management techniques to good use. How is this different from investment banking? Well, investment banking is a financial institute that aims to provide advice on services to different kinds of businesses so as to raise capital and provide credit solutions as well.

Also, hedge funds are not available to just any body. It is mostly for people who are high-net worth individuals and also institutional investors as they do contain high risk. Hedge funds are actually considered as an alternative investment.

Since it required to offer more returns to the investors, the management style that is adopted for hedge funds is quite aggressive too. Plus, since hedge funds are more open ended, which means that investors get an advantage of withdrawing capital depending on the value of the funds. Also remember that the hedge funds are not restricted with any kinds of limitation, though they are put under certain regulatory framework since the 2008 economic crisis.

To help you with the hedge funds and to understand the functioning of asset management better, you need to hire an asset management company. Make sure that you choose them wisely and do a thorough research before you go ahead with them. This is a lot of money that we deal with and hence it is an absolute must that you are sure about the company that you are choosing to help you with this. Look for them online, read reviews and so on.

The importance of a good asset and wealth manager

In the time of crisis, you might have heard from some of the top asset management companies in India that many investors are panic selling as the markets are going down and also the investors are in a way losing their patience at this time of the crisis. There is also a school of investors who chose to not sell their shares as it also formed a major part of their assets and even reaped high benefits over a long period of time. However, it is important to note that the difference between these two types of investors is not just about the difference in the level of patience, but mostly also about the guidance that they might be receiving from their wealth or asset manager.

It has however, always been reiterated that when the markets are down, it is actually the best time to buy those shares because they are available are a lower or a cheaper rate and it will only see a growth in the future.

Unfortunately, however, not all wealth or asset managers are always capable of making their clients understand this concept. When this happens, then the investor ultimately looses out on the profits that they were going to gain had they got the proper guidance for the same. This then brings us to the main point of the blog, of having a good wealth manager. A wealth manager is not just someone who managers your account but also someone who plans out and strategizes the growth of your wealth for you. He or she needs to also make you aware of the different concepts such as ESG funds, long shorts funds in India, different kinds of mutual funds, and so on. They need to inform and educate you about what actually is best for your financial portfolio and even disadvantages of the rest.

How does an asset management company help the business?

If you want to see your business grow, then it is very important that you manage your investments and also the money, and the profit that you receive with a strategy, so that you get financial stability. If by any chance you feel that you cannot manage investment or do not have sufficient knowledge for managing the same, then you could take help from any of the asset management companies that can help your business reach the target goal in the end. Therefore, it is extremely important for a business to have certain meaningful investments, which means, that they investment money in a way that gets higher returns in the time to come.

For this, you can hire one of the asset management companies. Asset management companies are those that help you manage your assets, liabilities and also help you navigate through the journey. A mindful investment can really get your money to flourish in the long run and you can get a steady return on this investment. In order to be able to decode what kind of investment or what kind of business actually suits your business profile, asset management company helps you. They also help you understand that ESG funds in India or rest of the world.

What an asset management company does it that it invested the pooled investments from the clients and also puts the capital to work through different modes of investments. It applies to both tangible and non-tangible assets. Tangible asset means those assets that can be seen or touched and whose quality can be physically measured. The intangible assets are those assets that you cannot see, feel and touch and are mostly just on paper. This includes, gold, property, bonds, ESG funds India, shares etc.

However, make sure that you choose your asset management firm carefully. Do a little research at your end before you go ahead.

Workings of investment banks and the difference between investment banks and wealth management

INVESTMENT BANKS

A financial services firm that serves as an intermediary in broad and complex financial transactions is known as an investment bank. When a start-up company prepares for an initial public offering (IPO) or when a firm merge with a rival, an investment bank is normally involved. Big institutional clients, such as pension funds, use it as a broker or financial advisor.

 

WORKING OF INVESTMENT BANKING FIRMS

An investment bank's advisory division is compensated for its services. The trading division is compensated for its business success with commissions. Many have retail banking divisions that make money by lending money to customers and companies, as previously stated.

Financial advisors, brokers, and salespeople are among the jobs available at investment banks. A career in investment banking can be lucrative, but it also entails long hours and a lot of tension.

 

ROLE OF INVESTMENT BANKING FIRMS

Investment banks are best known for acting as go-betweens for businesses and the capital markets. That is, they assist companies through issuing stock in an initial public offering (IPO) or a secondary stock offering. They also help businesses obtain debt funding by locating large-scale buyers for corporate bonds.

 

TOP 5 INVESTMENT BANKING FIRMS IN INDIA

1.   AVENDUS CAPITAL 

2.   AXIS CAPITAL LIMITED

3.   EDELWEISS FINANCIAL SERVICES LIMITED

4.   JM FINANCIAL INSTITUTIONS SECURITIES

5.   ICICI SECURITIES LIMITED

 

INVESTMENT BANKING vs WEALTH MANAGEMENT

Within the financial sector, wealth management and investment banking are two of the most common career paths. Despite the fact that there is a lot of overlap and connection between these two sectors, the two positions are somewhat different.

·         Investment bankers are more likely to work longer hours and earn a higher salary.

·         Individuals are the primary clients of wealth management, while companies are the primary clients of investment banking.

·         There is a lot of overlap between investment bankers and wealth management firms' activities.

·         Clients of wealth management firms are often business owners who may need investment banking advice on business restructuring or potential M&As, as well as access to investment banking products such as initial public offerings (IPOs) or bond offerings.

Concept of banking companies and investments

LONG-ONLY ABSOLUTE RETURN FUND

A Long-Only Fund or Long-Only Absolute Return Fund invests exclusively in long positions, searches out undervalued stocks, and eliminates uncertainty and downside risk by retaining capital, fixed income, and other basic asset groups. Options, futures, and other derivatives can be used by this fund to minimise or "hedge" risk and gain exposure to underlying physical investments, but not for speculative purposes.

Investment funds that aren't hedge funds may also have exposure. Long-Only ARFs, in contrast to conventional funds that seek relative returns, follow strategies that they believe would result in positive or "true" returns independent of any index benchmark under all market conditions.

 

FEATURES OF LONG ONLY FUNDS

The aim is to achieve continuous positive returns regardless of market conditions.

Investing strategies with a wide range of options, including futures, but no speculation.

Invests in common or other Long-Only Absolute Return Funds only on rare occasions.

Using leverage sparingly.

Often open-ended and only available to a small group of interested institutional and retail investors.

 

BENEFITS

Management experience is responsible for a large part of the performance of Long-Only ARFs. Long-Only ARFs, like hedge funds, are skill-based, relying on the expertise of experienced experts to evaluate securities and markets. Long-Only ARF managers are able to select winning securities and generate substantial asset value by combining superior experience, insight, and sophisticated and creative techniques.

 

HISTORY OF INVESTMENT BANKING COMPANIES IN INDIA

Investment banking in India dates back to the 19th century, when European merchant banks first founded trading houses in the area. Since then, non-Indian foreign banks have controlled the country's investment and merchant banking activities.

The State Bank of India entered the merchant banking market in the 1970s by establishing the Bureau of Merchant Banking, and ICICI Securities became the first Indian financial institution to do so.

The number of merchant banks had increased to more than 30 by 1980. Commercial banks and other financial institutions expanded rapidly during this period of rapid growth in the financial services industry.

 

ASSOCIATION OF INVESTMENT BANKERS OF INDIA

The merchant banking industry began to take off in the 1990s, according to the Association of Investment Bankers of India (AIBI), with over 1,500 merchant bankers registering with the Securities and Exchange Board of India (SEBI).

The Association of Investment Bankers of India (AIBI) was formed to control and rule the new wave of banks that emerged, ensuring that members complied with banking regulations and that their activities were monitored.

AIBI's mission is to ensure that member institutions observe its ethical and legal practises, as well as to promote the investment banking industry in India and its members' business interests.

The need for invesments – an overview on venture capital investments and the financial advisory services

FINANCIAL ADVISORY SERVICES

It is a financial advisory service that will assist you in achieving your long-term objectives. What is financial preparation, exactly? It entails investing in return-oriented instruments in order to prepare for your future financial needs. Individually, evaluating different investment instruments and market cycles would be challenging. As a result, financial advice services will serve as a roadmap for your personal financial planning. Personal financial planning allows you to relax and think less about making a stable future investment while we take care of the rest.

WORKING OF FINANCIAL ADVISORY SERVICES

Financial consulting firms employ industry experts and seasoned professionals. They will take care of your needs and teach you about financial planning. The advisory services will risk profile your portfolio and assign the appropriate asset classes to it. Financial planning at a young age ensures a high rate of potential development.

BENEFITS OF PERSONAL FINANCIAL PLANNING

·         Obtain a good picture of additional costs.

·         You'll have a straightforward, attainable objective.

·         Timetable for achieving the objective

·         Future protection will benefit from this.

·         The plan for achieving that goal

·         It teaches you how to manage your money.

·         Assisting in tax preparation

·         Providing a secure future for dependents

·         Make a list of your top priorities.

VENTURE CAPITAL – MEANING

It is a private or institutional investment in early-stage or start-up businesses (new ventures). Ventures, as described, entail taking a risk (having an unknown outcome) in the hopes of making a significant profit. Venture capital is money invested in start-ups and small companies that have a lot of potential to expand. Venture capitalists are the people who invest this money (VCs). A venture capitalist makes a venture capital investment when he or she buys stock in a company and becomes a financial investor.

Venture capital investment is also known as risk capital or patient risk capital because it involves the risk of losing money if the venture fails and the investments take a medium to long time to pay off.

FEATURES OF VENTURE CAPITAL INVESTMENTS

·         Lack of Liquidity is a High-Risk Situation

·         Long-term perspective

·         Capital gains and participation in the stock market

·         Investments in new ventures are made with venture capital.

·         Venture capital investors are involved in the company's management.