Financial services is a multi-trillion-dollar industry. Extensive asset management companies pool money from individual investors, businesses, and non-profits to invest in different asset classes such as stocks and bonds. These companies have the expertise and resources that most individual investors don’t. They manage money on your behalf to deliver capital appreciation, create wealth, and preserve your money in exchange for a fee.
What is an Asset Management Company (AMC)?
Understanding AMCs
Asset management firms take money from individuals ranging from small retail investors to those with a high net worth and attempt to invest in securities. Additionally, investment management companies will help other institutions such as colleges, or pension funds meet their financial goals. Asset managers use the money provided by investors in assets such as stocks, bonds, real estate to help generate returns to meet their goals.
How Big Asset Management Firms Work
Here we take a look at the top 10 largest investment management companies in the world based on their asset under management (AUM). These financial services giants also offer other services like brokerage and management consulting, besides asset management.
Rankings of the Largest Asset Management Companies
10- Amundi Asset Management, $1.59 trillion
French asset management giant Amundi had EUR 1.425 trillion ($1.59 trillion) of assets under management at the end of 2018, making it one of the world’s largest investment management companies. It was formed in 2010 following the merger of the asset management businesses of Societe Generale and Credit Agricole. It has offices in 37 countries. It operates mutual funds, ETFs, RE, and PE funds.
9- BNY Mellon, $1.7 trillion
The Bank of New York Mellon is one of the world’s oldest banks with its roots going back to 1784 when Alexander Hamilton founded the Bank of NY. Its asset management arm has $1.7 trillion of assets under management, according to the company’s regulatory filing. BNY Mellon was formed in 2007 following the merger of the BNY with Mellon Financial.
8- Capital Group Companies, $1.86 trillion
Founded in 1931, Capital Group Companies had $1.86 trillion of total assets under management as of March 2019. It has more than three dozen mutual funds through its subsidiary American Funds. Capital Group Companies has a strong presence not only in the US but also in Asia, Europe, and South America. The company receives praise for diversity among its employees.
7- Allianz, $2.19 trillion
German insurance and asset management giant is the largest investment management company in Europe. According to the company’s regulatory filing, it had $2.19 trillion of assets under management at the end of 2018. Allianz’s asset management company consists of PIMCO, Allianz Global Investors, and Allianz Real Estate. Yes, PIMCO is a wholly-owned subsidiary of Allianz.
6- Fidelity Investments, $2.56 trillion
Led by billionaire Abigail Johnson, Fidelity Investments has $2.56 trillion in assets under management, making it one of the world’s largest asset management companies. Fidelity ContraFund and Fidelity 500 Index Premium are two of its most popular mutual funds. Fidelity also offers brokerage services. Last year, it started offering mutual funds with a zero expense ratio.
5- JPMorgan Chase, $2.73 trillion
New York-based JPMorgan Chase is one of the world’s largest banks. It also offers a wide range of services such as asset management, investment banking, brokerage, credit cards, and treasury & security services. At the end of 2018, it had $2.73 trillion in assets under management. JP Morgan Chase was formed in 2000 following the merger of JPMorgan with Chase Manhattan.
4- State Street Global Advisors, $2.81 trillion
Boston-based State Street Global Advisors is a subsidiary of State Street Corporation. It had $2.81 trillion in AUM of investments at the end of 2018. The investments firm manages money for local governments, associations, educational institutions, non-profits, and even religious organizations. The SSGA was founded in 1978. It offers asset management services in countries across the Americas, Europe, and Asia.
3- Charles Schwab, $3.52 trillion
Charles Schwab is a leading banking and brokerage services provider in the United States. It also provides asset management, margin lending, and other services. Charles Schwab has more than 11 million active brokerage accounts and $3.52 trillion of assets under management. Charles Schwab is known for bringing investing to the masses through low commissions and an electronic trading platform. Charles Schwab also is famed for its prestigious and popular wealth management platform.
2- Vanguard, $5.2 trillion
Founded by legendary investor John Bogle, The Vanguard Group is credited with popularizing low-cost passive investing. Its vehicles mirror the asset allocation of an index or the broader stock market without the involvement of an active fund manager. That’s why its expense ratios are much lower than active competitors. According to Vanguard, it had $5.2 trillion in total assets at the end of January 2019.
1- BlackRock, $6.5 trillion
New York-based BlackRock is by far the world’s biggest investment management company with an AUM of $6.5 trillion as of April 2019, according to the company’s regulatory filing. Founded in 1988, BlackRock is often referred to as the world’s largest shadow bank due to its mammoth size and power. BlackRock’s iShares are incredibly popular among individual investors as well as businesses. BlackRock vehicles focus on risk management, which is why they performed much better than others during the 2008 financial crisis.
Types of Asset Management Companies
There is a significant variance between different vehicles used by an asset management company. Below are various vehicles used by both independent investment advisors and significant firms.
Mutual Funds
Mutual funds are investment vehicles that usually invest in a (usually) diversified class of assets. Take, for example, an S&P 500 passive index fund run by an investment management firm such as The Vanguard Group. The mutual fund will buy the companies which make up the S&P 500 index and attempt to mimic those returns. When the S&p 500 rises, so will the value of this fund, and when it declines, so will the value. This type of mutual fund tends to have much lower management fees.
Active mutual funds are similar but are managed by an asset manager who is more actively buying and selling securities. This manager may attempt to purchase different securities in an attempt to beat their bogie, which is many times the S&P 500. These vehicles could be more concentrated than passive index funds, and while returns could go higher so too does risk.
Many investment management firms will offer both types of these vehicles to clients. For example, Fidelity has thousands of mutual funds clients can purchase, consisting of both passive and active funds.
Hedge Funds
Hedge funds are vehicles run by asset managers who attempt to beat the market on a risk-adjusted basis. These vehicles pool assets of their clients that typically employ non-correlated asset strategies in an attempt to generate “alpha“. These vehicles are usually limited to high net worth or institutional investor clients by securities regulations. There are many different types of hedge fund strategies, but the most common one is a long-short equity vehicle. A long-short equity fund will buy stocks it expects to increase in value and short (or bet against) those it thinks will decline.
Exchange-traded Funds
Exchange-traded funds (ETFs) are similar to mutual funds. The main difference is that ETFs tend to be much more liquid and can be bought or sold by clients at any time during market trading hours. While an active asset management firm can run ETFs, the vast majority of them are passive vehicles. As passive AUM has soared, so have ETFs to many trillions.
Index Funds
As mentioned above index firms attempt to copy the returns of an index instead of trying to outperform it. Index vehicles are usually either ETFs or mutual funds. Although the goal is to match the index, passive funds require shrewd asset managers to keep up with index changes. For example, an index fund that mimics the S&P500 will need to buy when new stock is added to the S&P 500.
Private Equity Funds (PE)
A private-equity fund is a vehicle used by an asset management company to make direct investments usually in a private company. The vehicle typically puts money into equity, although at times, debt financing is also done by private equity managers. PE vehicles are even more long-oriented than hedge firms with lock-ups that sometimes last ten years.
Other Funds
Wall Street is always evolving. For example, hedge firms like Tiger Global have significant private equity holdings. There is also a fund of funds which attempt to diversify hedge fund investing by allocating to several money managers. Preferred vehicles assign money to an asset class which is a hybrid between debt and equity. Finally, Venture Capital firms are similar to private equity with more of an emphasis on startups. These assets are riskier and need to be used with caution for a client looking at their retirement plans.
Benefits to Investment Management Companies
Access to Broad Asset Classes
When a high net worth client places money with an investment manager, he is doing more than just establishing a business relationship. Many investors will create a portfolio to gain access to other products, information, services, and sometimes even for bragging rights.
Economies of Scale
Notwithstanding the significant benefits of smaller investment companies for clients, there is a critical scale factor. For example, a recent study finds that economies of scale significantly reduce clients cost at least until an investment manager hits $3.5 billion managed. Another recent survey of the United Kingdom also finds that investment managers can share lower prices with investors as size increases.
Specialized Expertise
One of the main benefits investors get from a portfolio with a money management firm is expertise. It is quite tedious to read even one 10Q of a company. Active equity managers will spend hours a day reading stock filings with EDGAR. A client is making a trade-off between money for a manager who has the time and expertise to analyze complex investment filings.
Downsides to Asset Management Companies
Inflexible
When investing in an asset management company, a long lock-up is usually an issue: This is particularly true for asset management companies that focus on high net-worth individuals such as hedge firms and private equity firms. Money management firms hire capable portfolio managers who have years of experience. On the other hand, many of these fund managers tend to have defined investment styles: This is a downside; for example, one particular strategy is under-performing. For instance, since the financial crisis, value investing has been under-performing. Those asset management companies which focus on value-oriented exchange-traded funds or stocks in their portfolio have caused their clients to underperform for over a decade.
Management Fees
Fees can be one of the biggest causes of investor underperformance. Active asset management companies need to pay for salaries, investment research, legal costs, and more. Therefore, the fees are much higher than passive index vehicles. Indeed, the average hedge fund fee is about 2% of assets and 20% of returns generated. In comparison, index funds sometimes charge less than ten basis points with no performance charges. Because of the rules of compound interest, over time, even a small fee can take significant bites out of your money. For that reason, many investors prefer placing their money in low-cost index vehicles such as vehicles managed by The Vanguard Group.
Risk of Underperforming
We discussed above how fees charged to investors cause performance to drag. Additionally, there is a risk that the managers’ portfolio will do poorly even before accounting for investor fees. For example, studies show that 80% of fund managers consistently underperform their benchmark. Even large and famous investors like John Paulson, who had impressive portfolio returns during the financial crisis, struggled afterward and eventually closed his fund to new clients. Many investors tend to allocate their money after an investment manager’s best returns and therefore miss out on the stellar years of strong performance.
FAQs
Which company has the most assets?
As discussed above, BlackRock is the most prominent asset management firm in the world with $7.3 trillion AUM, managed as of 2020. In terms of total assets, AT&T is the largest at $552 billion.
What does asset management involve?
Investment advisors purchase assets on behalf of their clients. The goal is to produce acceptable returns for their clients while minimizing risk. The asset manager is tasked with allocating the money and monitoring progress throughout the process.
What is the most stable investment?
All investments contain a level of risk to them. However, US Treasury bonds are seen as the safest investment among most asset management firms. The reason is that the US Government can print money and has the world’s most powerful army behind it. Other stable assets include CDs, money market accounts, and savings accounts.
How do I start a career in asset management?
Many people working for asset management firms do not start there. The most common career path is to first work for an investment bank for at least two years. These vital skills in financial modeling and Microsoft excel are typically required at investment management firms. Additionally, getting an MBA or taking the Chartered Financial Analyst (CFA) test are seen as significant pluses by large fund managers.
What is an example of a capital asset?
Capital assets are vital investments that a company expects to increase or retain market value over a long period. A capital asset investment is expected to last at least one year and not be sold in the course of regular business. Some examples include property, stocks, bonds, buildings, and equipment.
Final Words
The investment management world is full of exciting changes. The popularity of ETFs, passive investing, and the increased technologization of the finance sector mean that what worked ten years ago for investors may not do so in the future. However, regardless of what the future holds clients and astute independent investors will always gravitate to financial companies who can offer good risk-adjusted returns.
