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A Reflection on Asset Management

A Reflection on Asset Management

  • Wilson Tomás • Research Analyst, Banco BIG Moçambique

In the vast financial world, the asset management industry stands out with significant influence. Responsible for managing investments on behalf of individuals, institutions and even governments, this industry plays a vital role in the financial markets. However, there are challenges and complexities that merit closer scrutiny.

Asset management is about increasing wealth over time by buying, holding and selling investments with the potential to appreciate in value. Its aim is to maximise the value of an investment portfolio over time, while maintaining an acceptable level of risk. Professionals in this field offer this service to third parties and may be called portfolio managers or financial advisors, with a fiduciary responsibility to act in the best interests of their clients.

This field requires specialised knowledge and faces constant uncertainty. Asset managers deal with various types of investments, such as shares, bonds, property, commodities and investment funds, among others. They balance portfolios with precision, diversifying between different types of assets and geographical regions to seek superior returns.

An investor or fund manager’s approach to selecting investments is based on a number of factors, including: the investor’s disposition to risk, with some investors preferring conservative strategies while others are more aggressive; the preference between Growth (which involves investing in assets with significant growth potential in the future, aiming for higher returns) and Value (which involves looking for assets that are undervalued in relation to their intrinsic value, looking for investment opportunities priced below their real potential); and the Market Capitalisation of the Shares Chosen, which defines that investment managers can choose shares based on their market capitalisation, which involves dividing companies into categories based on the size of their market capitalisation, such as large capitalisation, medium capitalisation and small capitalisation.

In Mozambique, asset management is mainly carried out by institutional investors, such as insurance companies, pension fund management companies and social security institutes

Although it is difficult to determine the first asset management institution in the world due to its evolution over time, some organisations have played significant roles in this development, such as Baring Brothers & Co, Brown Brothers Harriman & Co and the State Street Corporation.

Baring Brothers & Co., founded in 1762 in London, was one of the first organisations to engage in large-scale international banking and commercial operations, managing the assets of wealthy and noble families. Brown Brothers Harriman & Co., established in 1818 in the USA, began managing clients’ assets after initially engaging in commerce, and played an important role in the development of the American financial sector. State Street Corporation, founded in 1792 as Union Bank in Boston, Massachusetts, has evolved over time to become one of the largest financial services companies in the world, offering a variety of asset management services to institutional and individual clients.

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The global asset management market exceeds several trillion dollars, and currently the largest asset management institutions include BlackRock (with Assets Under Management – AUM – of USD 9.1 trillion), Vanguard Group (with AUM of USD 7.6 trillion), Fidelity Investments (with AUM of USD 4.2 trillion), and UBS Group (with AUM of USD 4.0 trillion), among others. In addition to asset management, there are also Hedge Funds which, despite their differences, play a crucial role in the economy, contributing to the efficient allocation of resources, diversification of investments, job creation, financial intermediation, corporate governance and social responsibility. In 2023, the most notable Hedge Funds include: Bridgewater Associates a world leader, with AUM of over USD 223 billion; AQR Capital Management with AUM of USD 186 billion; Millennium Management with USD 148 billion; and Citadel with USD 145 billion.

In Mozambique, asset management is mainly carried out by institutional investors, such as insurance companies, pension fund management companies and social security institutes. These investors play an important role in the Mozambican capital market, contributing to liquidity management and increasing the volume of transactions each year.

But the Mozambican market still presents some obstacles to the development of asset management, such as old and outdated legislation that needs to be revised to adapt the industry to international standards; a low level of literacy about the workings of this market; and the lack of independent managers to promote asset management activity.

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