Classification of asset managers
There are different classifications of asset managers:
Sell-side vs buy-side
A sell-side firm is an investment firm that sells securities and provides investment advice to its clients, mainly the buy-side firms, which are firms that ‘buy’ services of the sell-side firms.
Full-service vs multi-boutique
Some firms are specialists in a particular investment style or asset class while others are ‘full-service’ (in that they provide services related to all asset classes or styles) or multi-boutique (in which they separate components each specializing in a niche market).
Active vs passive vs smart beta
Active asset managers attempt to beat their benchmarks while passive asset managers attempt to replicate market returns. Active managers represent a much larger market share. Another segment called smart beta asset managers decides investment based on simple, transparent, rule-based strategies.
Traditional investments vs alternative investments
Traditional managers generally focus on long-only equity or fixed-income strategies and earn asset-based management fees, but the alternative asset managers include investments in hedge funds, private equity, and venture capital strategies, among others, and earn both management and performance fees (or “carried interest”).
Ownership structure of asset management firms
Asset managers also differ based on their ownership structure. Many are privately-owned (and structured as limited liability companies) by individuals who have actively involved in the management of the firm. Investors prefer funds whose managers have their own wealth tied up in the fund. Some asset management firms are publicly-traded while others are segments of diversified financial services conglomerates.
Recent trends in investment management industry include:
- Growth in passive investing (mainly related to equities) due to its low cost and increasingly scarce opportunities for generating alpha.
- Usage of advanced statistical and machine-learning techniques to streamline investment processes and generate investment insights from big data, particularly social media data (which may be useful in providing consumer sentiment, company announcements, etc.), and imagery and sensor data (which is useful in studying weather, cargo shipments, etc. and
- Growth of robo-advisers, which are technology solutions aimed at automating the investment management process. The growth is triggered by growth in ‘mass affluent’ and young investors, lower fees, and entry by non-traditional firms into the investment management industry.