Lesson 5 of 7 · 14 min
The asset management industry
Asset managers are buy-side firms that run money actively or passively, as traditional or alternative managers, under various ownership structures, in an industry being reshaped by cheap passive investing, big data and robo-advisers.
In short
- An asset manager is a buy-side firm: it uses the services of sell-side broker-dealers, which sell securities and provide research.
- Firm types: specialists (one asset class or style), full-service managers, and multi-boutiques (a holding company owning several specialist firms that share central services).
- Active managers try to beat a benchmark; passive managers replicate an index. Passive is about a fifth of assets but only around 6% of revenue because fees are low. Smart beta uses simple, transparent rules (size, value, momentum, dividends).
- Traditional managers run long-only equity, bond and multi-asset strategies for asset-based fees; alternative managers run hedge fund, private equity and venture capital strategies for management and performance fees. The line is blurring (liquid alternatives).
- Most firms are privately owned (LLCs or limited partnerships); others are public or divisions of large financial groups. Managers investing their own capital signal alignment with clients.
- Trends: growth of passive investing, big data, and robo-advisers.
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