Overview of Asset Management Firms

Financial Services Industry Training

Introduction to
Asset Management Firms

Saunders Learning Group, LLC
Saunders Learning Group, LLC, Andover, KS

Training from Saunders Learning Group
Saunders Learning Group provides a variety
of training programs, workshops and
seminars targeted to the financial services
industry.

Programs are available in a wide range of
topics, and we are specialists in developing
custom programs that are targeted to your
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Contact the founder, Floyd Saunders at
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information.

1

Topics

1. Asset Management Overview
2. Functional Roles in Asset Management
3. Investment management
4. Trust services
5. Private Banking
6. Asset Allocation
7. Alternative Investments
8. Hedging Strategies
9. Cash Management
10. Pension Plans
11. Mutual Funds
12. Financial Planning Industry


Module 1
Asset Management Companies

Slide 3

Asset Management Industry
An asset management company invests its clients' pooled fund into securities that match
its declared financial objectives. Asset management companies provide investors with
more diversification and investing options than they would have by themselves. Mutual
Function funds, hedge funds and pension plans are all run by asset management
companies. These companies earn income by charging service fees to their clients.

 Enrolling new investors in mutual funds or other investment products.
 Advising potential clients in the range of investments and choices available
 Distribute mutual fund information to a client and recommend the best
investments for a client’s objectives
Example  Provide statements of accounts, annual reports, performance information
activities  May manage investment accounts on behalf of customers
 May participate in funding various investments on behalf of it’s investors.
 Sets up and administrators various types of retirement accounts, unit
investment trusts and other investment products.
 May operate a hedge fund for a private partnership of investors
 May operate a private equity fund to invest in companies, arrange mergers,
buy-outs and other investments in corporations, including start-up funding.

• State Street Global Advisers, Barclays Global Investors, JP Morgan, Vanguard,
Example BlackRock, Bank of America, Goldman Sachs, JPMorgan Private Bank, T.
Companies Rowe Price, BlackRock, Vanguard, PIMCO, and Fidelity are some of the
largest financial management companies.


How Asset Management Companies Work

 Asset management is in the business of using money to make more of it.
 Asset management companies manage the money of their clients to achieve specific
financial objectives within guidelines under which an investment pool is organized.
 The pool might take the form of a mutual fund, hedge fund, retirement or pension fund, or
other institutional fund and, depending on how the fund is organized.
 Asset managers could invest in any range of investment vehicles including equities, fixed-
income securities, and derivative products such as options and futures.
 Economic crisis of 2008
 After an average growth of 12 percent from 2002 to 2007 global assets under
management fell 18 percent in 2008.


Roles within the Asset Management Business
 Asset management of mutual funds requires an
infrastructure that includes:
 fund manager to manage the assets of a mutual fund
 analysts to research equities and fixed-income
investments
 economists to evaluate the direction of the market
and economy
 salespeople and marketers to persuade people to buy
the fund
 traders to execute orders
 accountants to track assets
 tech specialists and back-office staff.
0r
 A retail stockbroker, financial adviser or asset manager working on behalf of their clients
picks stocks, bonds, and other investments, determines the right portfolio mix, and
executes trades.


Primary Broker/Adviser Roles
 A Financial Adviser’s primary role is to acquire
new clients, sell them a variety of products-from
stock recommendations and mutual funds, to
annuity-based life insurance.

 Institutional Relationship Manager - ensure that
institutional clients of mutual funds or other
institutional products are happy; they resolve issues, educate clients on products,
and implement new processes. Relationship managers also advise and sell clients
new products.
 Institutional Sales Manager - call on pension funds, union plans, banks, and other
institutional clients and sell them funds, back-office products, or other products.
 Private bankers offer financial services and advice to wealthy individuals. These
bankers are often highly specialized and carry multiple degrees. Private banking units
usually charge their clients a fee for their services based on a percentage of assets
under management. Private bankers typically have at least five years of professional
experience as well as professional degrees.


Primary Roles in Asset Management
A Fund Manager is the person(s) responsible
for implementing a fund's investing strategy
and managing its portfolio trading activities. A
fund can be managed by one person, by two
people as co-managers and by a team of three
or more people. Fund managers are paid a fee
for their work, which is a percentage of the
fund's average assets under management.

 A financial analyst researches companies to determine it’s financial condition and will make
recommendations to buy or sell a company’s stock based on economic conditions and the
predicted earnings/financial strength of a company.
 An economist provide an opinion on the future of the market and general economy based on
financial and economic models that you develop and maintain, third-party models and analysis,
and analysis of global and domestic news and economic indicators.


Investment Management
 Discretionary
Asset A Discretionary approach means that, having agreed the strategy, you delegate
Management the day-to-day investment decisions relating to your portfolio to an investment
 Asset manager. This is ideal if you don’t have the time or resources to commit to researching and monitoring
Allocation and the global financial markets yourself.
Investment
Strategies
 Alternative Asset Allocation - A portfolio strategy that involves periodically rebalancing the
investments portfolio in order to maintain a long-term goal for asset allocation, where
investments are held in a mix of stocks, bonds, cash, commodities or
alternative investment.

Alternative investments include hedge funds, managed futures, real estate,
commodities and derivatives contracts. Most alternative investment assets are
held by institutional investors or accredited, high-net-worth individuals because
of their complex nature, limited regulations and relative lack of liquidity.
Link to 70 minute presentation on investment management @ Yale:
http://openmedia.yale.edu/projects/media_viewer/video_viewer2.php?window_size=medium&type=flv&title=ECON%20252%20-%20Lecture%209%20-
%20Prof.%20Robert%20Shiller&path=%2Fcourses%2Fspring08%2Fecon252%2Fflash%2Fecon252_09_021308


Personal Trust Services
 Trust and  Trust & Estate Planning
Estate A trust is a relationship where one party ("the grantor") gives fiduciary control of
property to another party (a person or an institution, "the trustee") for the benefit
Planning of another ("the beneficiary").
 Custody The trustee (Bank trust department) administers and controls the assets of the
trust according to instructions found within the trust document.
 IRA  A personal trust can be used to: reduce estate taxes, as a tool for protecting the
Administration assets of your estate, to ensure the proper distributions of assets to beneficiaries,
to provide support for your spouse and children.
 Will  Some of the services offered by a Trust Company include:
appointments  Living Trusts – A document that directs an trustee to managed investments for the trustor while
the trustor is still alive. This allows you to avoid probate and allow for the distribution of assets
 Foundations quickly after death.
 Revocable Trust - A trust that may be altered or terminated during the grantor's lifetime. Since the
and Charitable trust can be altered, it is part of the estate and subject to taxation.
Trust  Special Needs Trust - A specialized legal document designed to benefit an individual who has a
disability and allows for the payment of benefits from government programs.
 Testamentary Trust - A trust created by the terms of a will, with the executor as trustee, for the
benefit of someone else (spouse, child etc.)
 Dynasty Trust – A trust in which assets are controlled through several generations and makes use
of generation-skipping tax exemption.
 Life Insurance Trusts - An irrevocable trust set up with a life insurance policy as the asset, allowing
the grantor of the policy to exempt asset away from his or her taxable estate.


Personal Trust Services

 Custody  Custody - A service in which a brokerage or bank holds securities on behalf of the
customer. In addition to the safekeeping of assets the bank as custodian can sell the asset as
directed by the customer.

 IRA Plan Administration - A group of services providing complete administrative,
 IRA operational, and compliance support for individual retirement accounts
 Tax Reporting – Produces and mails tax information to IRA owners and the IRS
Administration
 Periodic Payment Notification and Calculation – Notifies you of IRA owners nearing
critical ages to elect payment options
 Death Benefit Claims Processing – Informs you and beneficiaries of payment options,
and notifies you of how and when to disburse assets.

 Will  Will Appointments – Arrangements were a trust department is appointed as the
administrator for a person’s will. The trustee will act to distribute assets according to the
Appointments provisions of a will, pay final expenses and file tax returns. Will appointments often include
arrangements for the creation of a trust to continue to manage assets for the benefit of
beneficiaries.

 Foundations – A legal categorization of a nonprofit organization set up to support specific
causes or charitable purposes. This type of non-profit organization differs from a private
 Foundations and foundation, typically set up to provide for a family or individual.

Charitable Trust  Charitable Trusts - Trust created for advancement of a specific cause and can be funded to
exist pass the lifetime of the person creating it or funding. Generally exempt from taxes.


Private Banking

 Also referred to as Wealth Management services
 Personalized financial and banking services that are traditionally offered to a bank's
rich, high net worth individuals (HNWIs).
 For wealth management purposes, HNWIs have accrued far more wealth than the average
person, and therefore have the means to access a larger variety of conventional and
alternative investments.
 Private banks aim to match such individuals with the most appropriate options.
 Private banking offers an array of deposit and cash management services, along with
residential mortgages, specialty lending and other custom financing solutions to help you:
 Manage your assets and liabilities
 Provide the liquidity you need for important investments
 Liquidate a concentrated stock position tax-efficiently
 Fund short-term cash flow needs
 Obtain financing for major purchases such as private aircraft and yachts


Asset Allocation
Asset Allocation – Review, analysis and management
Strategic Allocations Tactical Adjustments

tactical
underweight

strategic
overweight

Build portfolios based on
Further adjustments are made
strategic risk and return
assumptions and models. based on short-term insights.

Asset allocation does not ensure profit or protect against loss.

When an asset class is overweighted, other asset classes are underweighted by a compensating percentage so that the total allocation remains 100%..


Alternative Investment Strategies

MARKET ANALYSIS SPONSOR ANALYSIS PRODUCT ANALYSIS

 Investment Team

 Investment Process
 Current Market Dynamics  Financial Health of Sponsor  Risk Disclosure

 Regulatory Environment  Experience, Track Record  Legal, Compliance Issues  Track Record

 Market Participants  Organizational Alignment
 Return Potential

 Risk Profile

Private Equity Hedge Fund Strategies Real Estate Structure Products

Global Buyout Event Driven Trend Core Principal Protected

Distressed Real Equity Long Managed
Opportunistic Return Enhanced
Estate Short Futures

Mezzanine Absolute Return Multi-Strategy Value-Added Bull/Bear


Hedging and Monetization Strategies

Hedging Monetization Diversification

Option Strategies Hedging + Margin Loan Private Exchange Fund
Single or Multi-Investor
Pre-Paid Forward Sale
Sale of a Call Option
Contingent Forward Sale

Securities
Law

Regulatory Tax
Issues Implications

Client

Equity Deal
Derivatives Structuring

Equity
Trading


Cash Management

FORMULATE
INVESTMENT DEVISE A STRATEGY EXECUTE MONITOR
POLICY

Client Interest Rate Yield Curve Sector Security Benchmarking
Objectives Management Management Allocation Selection & Reporting
Understand Needs Establish Determine Identify Relative Identify and Capture Select Appropriate
for Return, Liquidity Investment Policy Positioning on Yield Value Between Value Between Index / Benchmark
and Preservation of Parameters Curve Sectors Alternative
Conduct Periodic
Capital Investments
Adjust Portfolio Performance
Define Investment Maturity Profile Forward Break- Monitoring
Yield vs. Stability
Goals, Acceptable Based on Interest Even
Security Analysis Provide Full
Investments, Rate Outlook Analysis Taxable vs. Tax-
Compliance
Portfolio Limitations, Exempt Execution
Reporting
Responsible Parties Horizon Roll-Down
and Authorized Analysis Provide Monthly
Broker / Dealer / Reports Conforming
Bank Spread Analysis to Month End
Identify and
Schedule
Anticipated Cash
Outlays


Corporate Consulting

Type of Fund Key Services
 Asset / Liability Studies
 Asset Allocation Advice
Defined Benefit Plans
 Traditional and Alternative Investment Manager Search
Capabilities
 Performance Measurement Reports
 Trust and Custody Services

 Bundled Platform Services
Defined
 Investment Consulting for Fund Lineup
Contribution Plans  Lifestyle Funds and Automatic Enrollment
 Personalized Asset Allocation Advice for Plan Participants

Foundations and  Investment and Spending Policy Statements
Endowments  Traditional and Alternative Investments
 Board Member Communications

Family Offices and  Specialized services for high net worth families including all
Private Individuals of the above and art advisory, private banking, aircraft
leasing and other capabilities


Pensions
 Definition: A pension plan is an asset pool that
accumulates over an individual’s working years
and is paid out during the nonworking years.
 Developed as Americans began relying less on
children for care during their later years.
 Also became popular as life expectancy
increased.
 Pension and retirement plans are available in a
number of types that are known as either
defined contribution or defined benefit plans.


Types of Pensions
 Defined-Benefit Pension Plans: a plan where the sponsor
promises the employee a specific benefit when they retire.

 For example, Annual Retirement Payment =
2% average of final 3 years’ income years of service
 Defined-Benefit Pension Plans place a burden on the employer to properly
fund the expected retirement benefit payouts.
 Fully funded: sufficient funds are available to meet payouts
 Overfunded: funds exceed the
expected payout
 Underfunded: funds are not expected to meet the required benefit payouts


Types of Pensions
 Defined-Contribution Pension Plan: a plan where a set
amount is invested for retirement, but the benefit payout
is uncertain.
 With this plan the employee’s benefits during retirement
depend on the contributions made to and the
investment performance of the assets in his or her
account, rather than on the employee’s years of service
or earnings history.
 Private Pension Plans: any pension plan set up by
employers, groups, or individuals
 Examples of defined-contribution plans include 401(k)
plans, 403(b) plans, and 457 plans
 Public Pension Plan: any pension plan set up by a
government body for the general public (e.g., Social
Security)


How a Pension Fund Works

The plan
administrator may
be an asset
management
company, bank, or
insurance company.


Investment Companies
• The investment company sells shares to the public and invests the
proceeds into a diversified portfolio of securities

 A Mutual Fund is one type investment company.

• Investors pool their capital and delegate the investment decision to a
central authority

• The central authority making the investment decisions earns a fee for their
service

 Q: What exactly are the services offered by this central authority?


Difference between Banks and Mutual Funds
Banks Mutual Funds
Leverage Banks have leverage – can borrow funds at Have no debt in their capital structures – cannot
a fixed rate of interest borrow funds

Incentive Investment quality is signaled through the Managers collect fees and do not own equity; There
market value of equity. Banks risk (invest) is no incentive alignment with investors based on
their own capital (borrowed from performance of the investments. Profits and losses
depositors at a fixed rate) which gives them are simply passed through.
strong incentives to invest wisely

Transparency Investments (loan portfolios) are opaque Investments are relatively transparent, with
investment advisors required to list their portfolios
at certain intervals

Types of Banks cannot invest in equity securities – Mutual funds do not negotiate loans. They may
investments conflicts of interest may develop purchase loans if securitized

Ownership Managers of the firm can also be owners Mutual Fund managers cannot invest in their own
(stock and/or options) which promotes fund, and since they do not risk their own capital,
incentive alignment are not incentive aligned.


Open-End Investment Companies or Mutual Funds

 An open-end investment company is commonly called a mutual fund and is the most common
investment company.
 These funds are open to new investment. New investor proceeds are exchanged for new shares in the
fund, and are invested in the portfolio. A mutual fund has no limit on the size of the fund or the number
of shares outstanding.
 The value of a mutual fund share is called its net asset value.
 Mutual fund shares are not sold in the traditional sense. Instead, they are redeemed by the fund
management.
 Investors buy-in at the Net Asset Value (NAV)
 NAV = Market value of the portfolio - Liabilities
 Shares outstanding
 The market value is easy to calculate at any point in time if the underlying
securities are traded in liquid markets (particularly true for an equity fund),
 However, investment companies do not real-time mark to market
 For most funds and investors, there is a 1:00PM commitment to
purchase shares, but at the 4:30PM NAV (market close)
 Fund size is determined by:
 The change in value of investments
 Net flow of funds -- buy-ins (+) and redemptions (-).
 If a fund is performing well, then its growth through Net New Flow
of Funds will likely be bigger than the growth through changes in
Investment value (Don’t confuse fund growth with return!!!).


Financial Planning Industry

Function  Provides banking and other services to clients with varying amounts of
money to invest

 Handling client requests, e.g. investment advice, buying or selling a certain
stock or bond
 Prospecting clients (usually through "cold calling")
Examples:
Example  Call all the lawyers at a particular law firm to see whether any are interested in
activities opening up an account
 Buy 500 shares of Procter & Gamble on a client’s behalf
 Distribute mutual fund information to a client and recommend the best
investments for a client’s objectives
 Inform the client of new products (such as different types of insurance or
annuities) that the brokerage is offering that could be useful in attaining certain
financial goals

Example  Smith Barney, Charles Schwab, Morgan Stanley, Fidelity, Raymond James,
Ameriprise, American Express and a host of independent firms.
Companies


Questions


Post Workshop Action Plan

 Complete the Post Workshop Action Plan

27

Thank You !


About the Author/Presenter
 Floyd Saunders has worked on Wall Street
with both Bank of America and JPMorgan,
where is was a vice president in global
financial systems. He has worked across the
industry in retail, commercial, and
investment banking.
 He has taught courses in Money and Banking
and extensively for the American Institute of
Banking and various colleges.
 As a consultant, he developed and taught a
wide range of banking and investing courses.
 He authored three programs for the
American Bankers Association: Banking on
Mutual Funds and Annuities, Introduction to
Securities Markets and Investing in Securities.
 He is the author of “Figuring Out Wall Street”
and his next book is “Family Financial
Freedom” a book on personal money
management.


Reference Material

Figuring Out Wall Street Consumer’s Guide To
Financial Markets
By Floyd Saunders
Publisher: Saunders Learning Group

ISBN: 978-0-9824019-0-3

Available from Amazon:
http://www.amazon.com/Figuring-Out-Wall-Street-
Consumers/dp/0982401906
and many other online book stores.
Book summary: Figuring Out Wall Street, is the
concise guide to help everyone understand how what to do
now to restore our financial systems. Written in an easy to
understand manner, even the most complex financial
concepts are easy to digest. This book provides help to
monitor investments with a review of investment products,
financial regulators and economic indicators. Learn how the
stock market exchanges work and the world of investment
banking, hedge funds, venture capital and private equity.
Every chapter includes action plans for investing.


Overview of Asset Management Firms

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