What Is an Asset Management Company (AMC)?
An asset management company (AMC) is a firm that invests pooled funds from clients, putting the capital to work through different investments including stocks, bonds, real estate, master limited partnerships, and more. Along with high-net-worth individual portfolios, AMCs manage hedge funds and pension plans, and—to better serve smaller investors—create pooled structures such as mutual funds, index funds, or exchange-traded funds, which they can manage in a single centralized portfolio.
Asset management companies are colloquially referred to as money managers or money management firms. Those that offer public mutual funds or exchange-traded funds (ETFs) are also known as investment companies or mutual fund companies. Such businesses include Vanguard Group, Fidelity Investments, T. Rowe Price, and many others.
AMCs are generally distinguished by their size, in terms of the amount of assets that they manage; the common metric to do so is assets under management (AUM).
Asset Management Company
- An asset management company (AMC) invests pooled funds from clients into a variety of securities and assets.
- AMCs span a wide range in terms of their size and operations, from personal money managers that handle high-net-worth (HNW) individual accounts and have a few hundred million dollars in AUM, to giant investment companies that offer ETFs and mutual funds and have trillions in AUM.
- AMC managers are compensated via fees, usually a percentage of a client's assets under management.
- Most AMCs are held to a fiduciary standard.
Because they have a larger pool of resources than the individual investor could access on their own, asset management companies provide investors with more diversification and investing options. Buying for so many clients allows AMCs to practice economies of scale, often getting a price discount on their purchases. Pooling assets and paying out proportional returns also allows investors to avoid the minimum investment requirements often required when purchasing securities on their own, as well as the ability to invest in a larger assortment of securities with a smaller amount of investment funds.
In most cases, AMCs charge a fee that is calculated as a percentage of the client's total assets under management. This asset management fee is a defined annual percentage that is calculated and paid monthly.
For example, if an AMC charges a 1% annual fee, it would charge $100,000 in annual fees to manage a portfolio worth $10 million. However, since portfolio values fluctuate on a daily and monthly basis, the management fee calculated and paid every month will fluctuate monthly as well.
Continuing with the above example, if the $10 million portfolio increases to $12 million in the next year, the AMC will stand to make an additional $20,000 in management fees. Conversely, if the $10 million portfolio declines to $8 million due to a market correction, the AMC's fee would be reduced by $20,000. Thus, charging fees as a percentage of AUM serves to align the AMC's interests with that of the client; if the AMC's clients prosper, so does the AMC, but if the clients' portfolios make losses, the AMC's revenues will decline as well.
Most AMCs set a minimum annual fee such as $5,000 or $10,000 in order to focus on clients that have a portfolio size of at least $500,000 or $1 million.
Some specialized AMCs such as hedge funds may charge performance fees for generating returns above a set level or that beat a benchmark. The "two and twenty" fee model is standard in the hedge fund industry.
Typically, AMCs are considered buy-side firms. This status means they help their clients make investment decisions based on proprietary in-house research and data analytics, while also using security recommendations from sell-side firms.
Sell-side firms such as investment banks and stockbrokers, in contrast, sell investment services to AMCs and other investors. They perform a great deal of market analysis, looking at trends and creating projections. Their objective is to generate trade orders on which they can charge transaction fees or commissions.
AMCs vs. Brokerage Houses
Brokerage houses and asset management companies overlap in many ways. Along with trading securities and doing analysis, many brokers advise and manage client portfolios, often through a special "private investment" or "wealth management" division or subsidiary. Many also offer proprietary mutual funds. Their brokers may also act as advisors to clients, discussing financial goals, recommending products, and assisting clients in other ways.
In general, though, brokerage houses accept nearly any client, regardless of the amount they have to invest, and these companies have a legal standard to provide "suitable" services. Suitable essentially means that as long as they make their best effort to manage the funds wisely, and in line with their clients' stated goals, they are not responsible if their clients lose money.
In contrast, most asset management firms are fiduciary firms, held to a higher legal standard. Essentially, fiduciaries must act in the best interest of their clients, avoiding conflicts of interest at all times. If they fail to do so, they face criminal liability. They're held to this higher standard in large part because money managers usually have discretionary trading powers over accounts. That is, they can buy, sell, and make investment decisions on their authority, without consulting the client first. In contrast, brokers must ask permission before executing trades.
Asset management companies usually execute their trades through a designated broker. That brokerage also acts as the designated custodian that holds or houses an investor's account. AMCs also tend to have higher minimum investment thresholds than brokerages do, and they charge fees rather than commissions.
Professional, legally liable management
Greater investment options
Economies of scale
Sizeable management fees
High account minimums
Risk of underperforming the market
Real-World Example of an AMC
As mentioned earlier, purveyors of popular mutual fund families are technically asset management companies. Also, many high-profile banks and brokerages have asset management divisions, usually for high-net-worth individuals or institutions.
But there are also private asset management companies that are not household names but are quite established in the investment field. One such example is RMB Capital, an independent investment and advisory firm with approximately $8.7 billion in assets under management. Headquartered in Chicago, with 10 other offices around the U.S., and 162 employees, RMB has different divisions, including:
- RMB Wealth Management for wealthy retail investors
- RMB Asset Management for institutional investors
- RMB Retirement Solutions, which handles retirement plans for employers
Charles Schwab acts as a custodian for RMB accounts. A subsidiary, RMB Funds, manages six mutual funds.