Superior Asset Management
Private investors (both directly via investment contracts and more commonly via collective superior asset management schemes. 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. After-tax represents the benefit to the investor, but investors tax positions may vary. At the heart of the superior asset management industry are the managers who invest and divest client investments. "Philosophy" refers to the over-arching beliefs of the investment organisation. For example, does the manager buy growth or value shares (and why)?
The most successful Superior Asset Management firms in the world have probably been those that have been separated physically and psychologically from banks and insurance companies. 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. 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). A good superior asset management team measures the return of a portfolio in excess of the risk-free rate, compared to the total risk of the portfolio. A certified company investment advisor should conduct an assessment of each client's individual needs and risk profile. Good asset management demands this is done before decisions are made.
The best performance and also the most dynamic business strategies (in this field) have generally come from independent investment management firms. The provision of 'superior asset management services' includes elements of financial analysis, asset selection, stock selection, plan implementation and ongoing monitoring of investments. Over a 10+ years period in most countries, equities have generated higher returns than bonds, and bonds have generated higher returns than cash. An institution believes it has done well if it has generated a return of 5% when the average manager (usually culled from amongst its peer class) generates a 4% return. Multi-factor models were developed as an alternative to the CAPM, allowing a better description of portfolio risks and an accurate evaluation of the superior asset manager performance.
Superior Asset Management: The different asset classes are stocks, bonds, real-estate and commodities. According to financial theory, equities are riskier (more volatile) than bonds which are themselves more risky than cash. 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). Generally speaking it is probably appropriate for an investment firm to persuade its clients to assess performance over a longer periods. This way the risks are spread and given time to recouperate in the event of heavy losses. The superior asset management firms calculate quartile and decile data and close attention would be paid to the (percentile) ranking of any fund.