Asset Management Services

Abstract

Services that keep inventory, track of hardware and software assets and licenses and management a customer's management of technology assets procurement or leasing assets. The business of investment management has several facets, including the employment of professional fund managers, research (of individual assets and asset classes), dealing, settlement, marketing, internal auditing, and the preparation of reports for clients. The largest financial fund managers are firms that exhibit all the complexity their size demands. Apart from the people who bring in the money (marketers) and the people who direct investment (the fund managers), there are compliance staff (to ensure accord with legislative and regulatory constraints), internal auditors of various kinds (to examine internal systems and controls), financial controllers (to account for the institutions' own money and costs), computer experts, and "back office" employees (to track and record transactions and fund valuations for up to thousands of clients per institution).

Asset Management Resources
For businesses from foundries to pharmaceuticals, tracking a complex fixed asset inventory isn’t simple without asset management resources. That’s probably why most businesses don’t have an accurate accounting of their fixed assets – costing billions of dollars each year in tax overpayment, regulatory non-compliance, and inefficiency
Our clients in the Asset Management space typically service institutional clients, private investors, as well as retail markets. We specialize in the buy side market space and have several leading, global Asset Managers and Custodian Banks as our clients.
We work across all security types including Equity, Fixed Income, Derivatives and Cash Instruments in supporting the front-office, middle office and back office operations.
Asset Management Resources core services
Fixed asset consulting services, featuring wall-to-wall fixed asset inventory and reconciliation (FAIR)
Personal property tax for businesses- management and consulting to reduce tax liability Expert cost segregation and fixed asset consulting services to maximize exempt allowances and incorporate
proper depreciation schedules
Investment management is the professional management of various securities (shares, bonds and other securities) and assets (e.g., real estate), to meet specified investment goals for the benefit of the investors. Investors may be institutions (insurance companies, pension funds, corporations etc.) or private investors (both directly via investment contracts and more commonly via collective investment schemes e.g. mutual funds or exchange-traded funds) .
The term asset management is often used to refer to the investment management of collective investments, (not necessarily) whilst the more generic fund management may refer to all forms of institutional investment as well as investment management for private investors. Investment managers who specialize in advisory or discretionary management on behalf of (normally wealthy) private investors may often refer to their services as wealth management or portfolio management often within the context of so-called "private banking".
The provision of 'investment management services' includes elements of financial statement analysis, asset selection, stock selection, plan implementation and ongoing monitoring of investments. Investment management is a large and important global industry in its own right responsible for caretaking of trillions of dollars, euro, pounds and yen. Coming under the remit of financial services many of the world's largest companies are at least in part investment managers and employ millions of staff and create billions in revenue.
Fund manager (or investment adviser in the United States) refers to both a firm that provides investment management services and an individual who directs fund management decisions
Key problems of running such businesses
Key problems include:
• revenue is directly linked to market valuations, so a major fall in asset prices causes a precipitous decline in revenues relative to costs;
• above-average fund performance is difficult to sustain, and clients may not be patient during times of poor performance;
• successful fund managers are expensive and may be headhunted by competitors;
• above-average fund performance appears to be dependent on the unique skills of the fund manager; however, clients are loath to stake their investments on the ability of a few individuals- they would rather see firm-wide success, attributable to a single philosophy and internal discipline;
• analysts who generate above-average returns often become sufficiently wealthy that they avoid corporate employment in favor of managing their personal portfolios.
The most successful investment firms in the world have probably been those that have been separated physically and psychologically from banks and insurance companies[citation needed]. That is, the best performance and also the most dynamic business strategies (in this field) have generally come from independent investment management firms[citation needed].
[edit] Representing the owners of shares
Institutions often control huge shareholdings. In most cases they are acting as fiduciary agents rather than principals (direct owners). The owners of shares theoretically have great power to alter the companies they own via the voting rights the shares carry and the consequent ability to pressure managements, and if necessary out-vote them at annual and other meetings.
In practice, the ultimate owners of shares often do not exercise the power they collectively hold (because the owners are many, each with small holdings); financial institutions (as agents) sometimes do. There is a general belief that shareholders - in this case, the institutions acting as agents—could and should exercise more active influence over the companies in which they hold shares (e.g., to hold managers to account, to ensure Boards effective functioning). Such action would add a pressure group to those (the regulators and the Board) overseeing management.
However there is the problem of how the institution should exercise this power. One way is for the institution to decide, the other is for the institution to poll its beneficiaries. Assuming that the institution polls, should it then: (i) Vote the entire holding as directed by the majority of votes cast? (ii) Split the vote (where this is allowed) according to the proportions of the vote? (iii) Or respect the abstainers and only vote the respondents' holdings?
The price signals generated by large active managers holding or not holding the stock may contribute to management change. For example, this is the case when a large active manager sells his position in a company, leading to (possibly) a decline in the stock price, but more importantly a loss of confidence by the markets in the management of the company, thus precipitating changes in the management team.
Some institutions have been more vocal and active in pursuing such matters; for instance, some firms believe that there are investment advantages to accumulating substantial minority shareholdings (i.e. 10% or more) and putting pressure on management to implement significant changes in the business. In some cases, institutions with minority holdings work together to force management change. Perhaps more frequent is the sustained pressure that large institutions bring to bear on management teams through persuasive discourse and PR. On the other hand, some of the largest investment managers—such as Barclays Global Investors and Vanguard—advocate simply owning every company, reducing the incentive to influence management teams. A reason for this last strategy is that the investment manager prefers a closer, more open and honest relationship with a company's management team than would exist if they exercised control; allowing them to make a better investment decision.
The national context in which shareholder representation considerations are set is variable and important. The USA is a litigious society and shareholders use the law as a lever to pressure management teams. In Japan it is traditional for shareholders to be low in the 'pecking order,' which often allows management and labor to ignore the rights of the ultimate owners. Whereas US firms generally cater to shareholders, Japanese businesses generally exhibit a stakeholder mentality, in which they seek consensus amongst all interested parties (against a background of strong unions and labour legislation).
Size of the global fund management industry
Conventional assets under management of the global fund management industry fell 19% in 2008, to $61.6 trillion. Pension assets accounted for $24.0 trillion of the total, with $18.9 trillion invested in mutual funds and $18.7 trillion in insurance funds. Together with alternative assets (sovereign wealth funds, hedge funds, private equity funds and exchange traded funds) and funds of wealthy individuals, assets of the global fund management industry totalled around $90 trillion at the end of 2008, a fall of 17% on the previous year. The decline in 2008 followed five successive years of growth during which assets under management more than doubled. Falls on equity markets, poor investment performance, reduced inflow of new funds, and investor redemptions, all contributed to the fall in assets in 2008. The decline reported in US dollars was also exacerbated by the strengthening of the US dollar during the year.
The US remained by far the biggest source of funds, accounting for over a half of conventional assets under management in 2008 or over $30 trillion. The UK was the second largest centre in the world and by far the largest in Europe with around 9% of the global total.[1]
Largest Asset Management Firms
JP Morgan & Chase (2.2T) State Street Global Advisors (1.9T) Bank of America/Merrill Lynch (1.5T) has overtaken UBS (1.4T) as the largest global wealth management firm, with Citi (1.3T) still in sight.[2]
Philosophy, process and people
The 3-P's (Philosophy, Process and People) are often used to describe the reasons why the manager is able to produce above average results.
• Philosophy refers to the over-arching beliefs of the investment organization. For example: (i) Does the manager buy growth or value shares (and why)? (ii) Do they believe in market timing (and on what evidence)? (iii) Do they rely on external research or do they employ a team of researchers? It is helpful if any and all of such fundamental beliefs are supported by proof-statements.
• Process refers to the way in which the overall philosophy is implemented. For example: (i) Which universe of assets is explored before particular assets are chosen as suitable investments? (ii) How does the manager decide what to buy and when? (iii) How does the manager decide what to sell and when? (iv) Who takes the decisions and are they taken by committee? (v) What controls are in place to ensure that a rogue fund (one very different from others and from what is intended) cannot arise?
• People refers to the staff, especially the fund managers. The questions are, Who are they? How are they selected? How old are they? Who reports to whom? How deep is the team (and do all the members understand the philosophy and process they are supposed to be using)? And most important of all, How long has the team been working together? This last question is vital because whatever performance record was presented at the outset of the relationship with the client may or may not relate to (have been produced by) a team that is still in place. If the team has changed greatly (high staff turnover or changes to the team), then arguably the performance record is completely unrelated to the existing team (of fund managers).
Investment managers and portfolio structures
At the heart of the investment management industry are the managers who invest and divest client investments.
A certified company investment advisor should conduct an assessment of each client's individual needs and risk profile. The advisor then recommends appropriate investments.
Asset allocation
The different asset class definitions are widely debated, but four common divisions are stocks, bonds, real-estate and commodities. The exercise of allocating funds among these assets (and among individual securities within each asset class) is what investment management firms are paid for. Asset classes exhibit different market dynamics, and different interaction effects; thus, the allocation of money among asset classes will have a significant effect on the performance of the fund. Some research suggests that allocation among asset classes has more predictive power than the choice of individual holdings in determining portfolio return. Arguably, the skill of a successful investment manager resides in constructing the asset allocation, and separately the individual holdings, so as to outperform certain benchmarks (e.g., the peer group of competing funds, bond and stock indices)...
Long-term returns
It is important to look at the evidence on the long-term returns to different assets, and to holding period returns (the returns that accrue on average over different lengths of investment). For example, over very long holding periods (eg. 10+ years) in most countries, equities have generated higher returns than bonds, and bonds have generated higher returns than cash. According to financial theory, this is because equities are riskier (more volatile) than bonds which are themselves more risky than cash.
Diversification
Against the background of the asset allocation, fund managers consider the degree of diversification that makes sense for a given client (given its risk preferences) and construct a list of planned holdings accordingly. The list will indicate what percentage of the fund should be invested in each particular stock or bond. The theory of portfolio diversification was originated by Markowitz (and many others) and effective diversification requires management of the correlation between the asset returns and the liability returns, issues internal to the portfolio (individual holdings volatility), and cross-correlations between the returns.
Investment styles
There are a range of different styles of fund management that the institution can implement. For example, growth, value, market neutral, small capitalisation, indexed, etc. Each of these approaches has its distinctive features, adherents and, in any particular financial environment, distinctive risk characteristics. For example, there is evidence that growth styles (buying rapidly growing earnings) are especially effective when the companies able to generate such growth are scarce; conversely, when such growth is plentiful, then there is evidence that value styles tend to outperform the indices particularly successfully.
Performance measurement
Fund performance is the acid test of fund management, and in the institutional context accurate measurement is a necessity. For that purpose, institutions measure the performance of each fund (and usually for internal purposes components of each fund) under their management, and performance is also measured by external firms that specialize in performance measurement. The leading performance measurement firms (e.g. Frank Russell in the USA or BI-SAM[1] in Europe) compile aggregate industry data, e.g., showing how funds in general performed against given indices and peer groups over various time periods.
In a typical case (let us say an equity fund), then the calculation would be made (as far as the client is concerned) every quarter and would show a percentage change compared with the prior quarter (e.g., +4.6% total return in US dollars). This figure would be compared with other similar funds managed within the institution (for purposes of monitoring internal controls), with performance data for peer group funds, and with relevant indices (where available) or tailor-made performance benchmarks where appropriate. The specialist performance measurement firms calculate quartile and decile data and close attention would be paid to the (percentile) ranking of any fund.
Generally speaking, it is probably appropriate for an investment firm to persuade its clients to assess performance over longer periods (e.g., 3 to 5 years) to smooth out very short term fluctuations in performance and the influence of the business cycle. This can be difficult however and, industry wide, there is a serious preoccupation with short-term numbers and the effect on the relationship with clients (and resultant business risks for the institutions).
An enduring problem is whether to measure before-tax or after-tax performance. After-tax measurement represents the benefit to the investor, but investors' tax positions may vary. Before-tax measurement can be misleading, especially in regimens that tax realised capital gains (and not unrealised). It is thus possible that successful active managers (measured before tax) may produce miserable after-tax results. One possible solution is to report the after-tax position of some standard taxpayer.
Asset Turnover

= Revenue


Total Assets

Indicates the relationship between assets and revenue.

Things to remember
• Companies with low profit margins tend to have high asset turnover, those with high profit margins have low asset turnover - it indicates pricing strategy.

• This ratio is more useful for growth companies to check if in fact they are growing revenue in proportion to sales.

Asset Turnover Analysis:
This ratio is useful to determine the amount of sales that are generated from each dollar of assets. As noted above, companies with low profit margins tend to have high asset turnover, those with high profit margins have low asset turnover. Cory's Tequila Co.'s asset turnover seems to be relatively low, meaning that it makes a high profit margin on its products. For companies in the retail industry you would expect a very high turnover ratio - mainly because of cutthroat and competitive pricing.
Collection Ratio

= Accounts Receivable


(Revenue/365)

This indicates the average number of days it takes a company to collect unpaid invoices.


Things to remember
• A high ratio indicates that the company is having problems getting paid for services or products.
• The ratio is sometimes seasonally affected, rising during busy seasons and falling during the off-season. To account for this seasonality, the average accounts receivable ((beginning + ending accounts receivable)/2) could be used instead.


Collection Ratio Analysis:
This ratio could perhaps be renamed as the "Thug Ratio", it explains the average time it takes to receive payment on sales. The "Thugs" at Cory's Tequila Co. seem to be doing their job quite well, on average it takes 37 days for customers to clear their invoices. This is quite reasonable since most companies clear pay all of their bills on a monthly basis. If we were really picky we could redo this calculation using only credit sales since cash purchases are received immediately.

Inventory Turnover

= Cost of Goods Sold


Average or Current Period Inventory

An important and often overlooked ratio that indicates inventory levels.

Things to remember
• A low turnover is usually a bad sign because products tend to deteriorate as they sit in a warehouse.

• Companies selling perishable items have very high turnover.

• For more accurate inventory turnover figures, the average inventory figure, ((beginning inventory + ending inventory)/2), is used when computing inventory turnover. Average inventory accounts for any seasonality effects on the ratio.


Inventory Analysis
Cory's Tequila Co. inventory has gone up almost 100% since last year, this could mean nothing or something. There could be something fundamentally wrong, perhaps sales are slowing. A change of 100% is quite substantial and should be a cause for concern if sales are slowing. But if we look more closely at Cory's Tequila Co.'s sales it shows that product sales have increased almost 50% since last year. In other words the higher inventory could simply be a factor of higher demand.
Debt-Equity Ratio

= Total Liabilities


Shareholders Equity

Indicates what proportion of equity and debt that the company is using to finance its assets. Sometimes investors only use long term debt instead of total liabilities for a more stringent test.

Things to remember
• A ratio greater than one means assets are mainly financed with debt, less than one means equity provides a majority of the financing.

• If the ratio is high (financed more with debt) then the company is in a risky position - especially if interest rates are on the rise.

Share Capital Analysis
The shareholder's capital has risen quite a bit if you compare the balance sheet numbers versus the previous year. Again this could mean a number of things, there are a couple reasons that this could have happened. Perhaps they've made acquisitions which were partially paid for through the issue of stock, or maybe they took on additional share capital from another firm. Another possible reason is that they had to issue more shares because they were strapped for cash. For the most part a rise in share capital is better than a rise in debt, but too much of a rise could be cause for alarm.

The Debt/Equity ratio is certainly far from perfect! A low ratio of 0.26 means that the company is exposing itself to a large amount of equity. This is certainly better than a high ratio of 2 or more since this would expose the company to risk such as interest rate increases and creditor nervousness. One way to improve their situation would be to issue more debt and use the cash to buyback some of its outstanding shares. The problem with issuing more and more stock like Cory's Tequila Co. has done means that outstanding shares become diluted and existing investors receive a smaller ownership portion with each additional share issued.

Note: Some prefer to use only "interest bearing long term debt" instead of total liabilities to get a more precise calculation.

Interest Coverage
= EBITDA


Interest Expense

Indicates what portion of debt interest is covered by a company's cash flow situation.

Things to remember
• A ratio under 1 means that the company is having problems generating enough cash flow to pay its interest expenses.

• Ideally you want the ratio to be over 1.5.

Interest Coverage Analysis:
If you will notice, Cory's Tequila Co. doesn't have any long term debt - therefore you will not find an interest expense. What a great position to be in, practically debt free. Companies with a ratio below 1 could run into serious trouble servicing its loan payments and are considered to be a high risk of defaulting. Because Cory's Tequila Co. has no interest expense its interest coverage ratio is infinite...obviously the best you could possibly have.

Working Capital Ratio (Current Ratio)

= Current Assets


Current Liabilities

Indicates if a firm has enough short-term assets to cover its immediate liabilities.

Things to remember
• If the ratio is less than one then they have negative working capital.

• A high working capital ratio isn't always a good thing, it could indicate that they have too much inventory or they are not investing their excess cash.

This ratio indicates whether a company has enough short term assets to cover its short term debt. Anything below 1 indicates negative W/C (working capital). While anything over 2 means that the company is not investing excess assets. Most believe that a ratio between 1.2 and 2.0 is sufficient, Cory's Tequila Co. seems to be comfortably in this area.

If you wanted to take this ratio a step further then you could try the Acid Test/Quick Ratio - it is a more strenuous version of the W/C, indicating whether liabilities could be paid without selling inventory.


Ratio Analysis: Conclusion

There is a lot to be said for valuing a company, it is no easy task. I hope that we have helped shed some light on this topic, and that you will use this information to make educated investment decisions. If you have any other questions about fundamental analysis please don't hesitate to contact us.

Let's recap what we've learned:
• Financial reports are published quarterly and annually.
• Ratios on their own don't really tell us a whole lot, but when we compare them against previous years numbers, other companies, industry averages, or the economy in general it can reveal a lot!
• Every ratio has it's variations, some people exclude things that others include. Use what you feel comfortable with, but be sure to have consistency when comparing against other companies.
Also:
1. If you think we missed something and have a question, tell us about it.
2. If you enjoyed this tutorial, make sure to Tell a Friend!
3. If you still aren't on our newsletter, why not?


Risk-adjusted performance measurement
Performance measurement should not be reduced to the evaluation of fund returns alone, but must also integrate other fund elements that would be of interest to investors, such as the measure of risk taken. Several other aspects are also part of performance measurement: evaluating if managers have succeeded in reaching their objective, i.e. if their return was sufficiently high to reward the risks taken; how they compare to their peers; and finally whether the portfolio management results were due to luck or the manager’s skill. The need to answer all these questions has led to the development of more sophisticated performance measures, many of which originate in modern portfolio theory.
Modern portfolio theory established the quantitative link that exists between portfolio risk and return. The Capital Asset Pricing Model (CAPM) developed by Sharpe (1964) highlighted the notion of rewarding risk and produced the first performance indicators, be they risk-adjusted ratios (Sharpe ratio, information ratio) or differential returns compared to benchmarks (alphas). The Sharpe ratio is the simplest and best known performance measure. It measures the return of a portfolio in excess of the risk-free rate, compared to the total risk of the portfolio. This measure is said to be absolute, as it does not refer to any benchmark, avoiding drawbacks related to a poor choice of benchmark. Meanwhile, it does not allow the separation of the performance of the market in which the portfolio is invested from that of the manager. The information ratio is a more general form of the Sharpe ratio in which the risk-free asset is replaced by a benchmark portfolio. This measure is relative, as it evaluates portfolio performance in reference to a benchmark, making the result strongly dependent on this benchmark choice.
Portfolio alpha is obtained by measuring the difference between the return of the portfolio and that of a benchmark portfolio. This measure appears to be the only reliable performance measure to evaluate active management. In fact, we have to distinguish between normal returns, provided by the fair reward for portfolio exposure to different risks, and obtained through passive management, from abnormal performance (or outperformance) due to the manager’s skill, whether through market timing or stock picking. The first component is related to allocation and style investment choices, which may not be under the sole control of the manager, and depends on the economic context, while the second component is an evaluation of the success of the manager’s decisions. Only the latter, measured by alpha, allows the evaluation of the manager’s true performance.
Portfolio normal return may be evaluated using factor models. The first model, proposed by Jensen (1968), relies on the CAPM and explains portfolio normal returns with the market index as the only factor. It quickly becomes clear, however, that one factor is not enough to explain the returns and that other factors have to be considered. Multi-factor models were developed as an alternative to the CAPM, allowing a better description of portfolio risks and an accurate evaluation of managers’ performance. For example, Fama and French (1993) have highlighted two important factors that characterise a company's risk in addition to market risk. These factors are the book-to-market ratio and the company's size as measured by its market capitalisation. Fama and French therefore proposed three-factor model to describe portfolio normal returns (Fama-French three-factor model). Carhart (1997) proposed to add momentum as a fourth factor to allow the persistence of the returns to be taken into account. Also of interest for performance measurement is Sharpe’s (1992) style analysis model, in which factors are style indices. This model allows a custom benchmark for each portfolio to be developed, using the linear combination of style indices that best replicate portfolio style allocation, and leads to an accurate evaluation of portfolio alpha

Portfolio Management and Advisory Services
National banks provide investment management services to clients with
differing characteristics, investment needs, and risk tolerance. A bank is
usually paid a percentage of the dollar amount of assets being managed in the
client’s portfolio. If an account’s total assets are below a minimum, it often
pays a fixed fee. Other factors in the amount of fees are an account’s
complexity and other banking relationships. Some banks have advisory
agreements that base compensation on performance. In this type of
arrangement, the portfolio manager, or adviser, receives a percentage of the
return achieved over a given time period.
National banks manage and provide advice on all types of assets for their
clients. Besides managing portfolios of publicly traded stocks and bonds,
national banks also manage and provide advice for portfolios that include a
broad range of investment alternatives such as financial derivatives, hedge
funds, real estate, private equity and debt securities, mineral interests, and art.
Refer to the Comptroller’s Handbook for Fiduciary Activities for information
on individual investment categories and related risk management processes.
Investment management services are provided in two primary types of
accounts: separately managed accounts and commingled or pooled
investment funds. Two types of pooled investment funds are collective
investment funds and mutual funds. A fiduciary portfolio manager may invest
a separately managed account’s assets in these types of funds to help achieve
its investment goals and objectives.
Separately Managed Accounts
A separately managed account is created solely for the purpose of investing a
client’s funds on a stand-alone basis. There are two primary types of accounts
for which a national bank provides investment management services: trusts
and investment agency accounts. National banks may also be responsible for
separately managed accounts when serving as an executor, administrator,
guardian, or in any other fiduciary capacity.


Investment Agency Accounts

Agency accounts are governed by the terms of the contract establishing the relationship, by state law, and by common agency and contract law
principles. A bank may have investment discretion for an investment agency account, or it may provide investment advice for a fee with limited or no investment discretion. Investment agency accounts for which the bank has investment discretion or for which it providessections of 12 CFR 9, Fiduciary Activities of National Banks. In a discretionary investment agency account, the bank usually has sole authority to purchase and sell assets and execute transactions for the benefit of the principal, in addition to providing investment advice. The bank’s investment authority is usually subject to investment policy guidelines established in the investment agency contract. In some discretionary investment agency accounts, the bank is given limited investment authority. Major investment decisions, such as changing the
account’s investment strategy or asset allocation guidelines, might be subject to the principal’s approval. In nondiscretionary investment agency accounts, the bank may provideinvestment advisory services for a fee to the principal, but must obtain the principal’s consent or approval prior to buying or selling assets. The bank may also be responsible for investment services such as executing investment transactions, disbursing funds, collecting income, and performing othercustodial and safekeeping duties.

References
1. ^ Fund Management: City Business Series. International Financial Services, London. 2009-09-29. http://www.ifsl.org.uk/upload/Fund_Management_2009.pdf. Retrieved 2008-14-14.
2. ^ http://www.cnbc.com/id/31756797

Impressum

Tag der Veröffentlichung: 19.03.2010

Alle Rechte vorbehalten

Widmung:
dedicated to the almigty