What is 'Investment Management'

Investment management is a generic term that most commonly refers to the buying and selling of investments within a portfolio. Investment management can also include banking and budgeting duties, as well as taxes. The term most often refers to portfolio management and the trading of securities to achieve a specific investment objective.

BREAKING DOWN 'Investment Management'

Investment management – also referred to as money management, portfolio management or private banking – covers the professional management of different securities and assets, such as bonds, shares, real estate and other securities.

Proper investment management aims to meet particular investment goals for the benefit of the investors. These investors may be individual investors – referred to as private investors – who have built investment contracts with fund managers, or institutional investors who may be pension fund corporations, governments, educational establishments or insurance companies. Investment management services include asset allocation, financial statement analysis, stock selection, monitoring of existing investments and plan implementation.

The Investment Management Industry

The global investment management industry in 2015 was worth an estimated $79 trillion in assets under management, as measured by a PricewaterhouseCoopers report in 2017. In corporate finance, investment management includes ensuring a company's tangible and intangible assets are maintained, accounted for and well-utilized. Meanwhile, investment management can also include financial advising provided by an advisor, who coordinates and oversees a client's portfolio.

Running an investment management business involves hiring professional managers, running individual asset and asset classes research, dealing, marketing, settlement, preparation of reports for clients, and internal auditing. Aside from hiring marketers and training managers who direct the overall flow of investments, those who want to run investment management firms must also ensure they move within legislative and regulatory constraints, examine internal systems and controls, account for cash flow, and properly track record transactions and fund valuations.

Key Problems in Running an Investment Management Firm

Though the investment management industry may provide lucrative returns, there are also key problems that come with running an investment management firm. The revenue of investment management firms are directly linked to the market's behavior. This means that the company's profits depend on market valuations. A major decline in asset prices can cause a fall in the firm's revenue, especially if the price fall is greater compared to company costs.

Also, clients may be impatient during hard times, and above-average fund performance may not be able to sustain clients' portfolios. This is why investment management firms must hire successful managers. However, these managers may be expensive and may be taken by other competitors. Though some clients may look at the performance of individual investment managers, some look at the overall performance of the company, which means that the firm must hire successful, expensive investment managers for clients to trust the company with their money.

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