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Asset management is the administration of assets.
Depending on the investor’s goals and their willingness to take risks, an asset manager compiles a portfolio. Security papers, that promise a high return are usually rather risky.
A skilled asset manager thus should create a portfolio which balances out an appropriate level of risk with suitable returns.
This task can be compared to the work a chef does when assembling a multiple course menu for his guests.
The chef will purchase the necessary ingredients at a food market – the asset manager procures security papers from the capital market. He needs to consider and incorporate his client’s willingness to take risks – the chef on the other hand needs to cater to his guest’s tastes. Too little salt is just as detrimental as too much of it.
While the chef is able to check his dishes by tasting them, the asset manager has to go to greater lengths to verify his portfolio.
Possible returns as well as risks refer to the future. Here, complex political, economical or psychological factors have to be taken into account.
Assessing these is what makes asset management interesting and challenging in the present, it’s results and quality may only be experienced in the future, though.
