How does an investment fund work and what is the role of asset managers?

• Asset managers play a crucial role in the professional management of investment funds, adopting strategies to maximize returns and meet investors’ goals.
• FlexFunds highlights that the distribution and growth of investment products are fundamental to achieving success in a highly competitive financial market.
• The asset management industry is experiencing significant growth, driven by the increase in assets under management and the rise of alternative asset classes, necessitating a reevaluation of business structures, technology adoption, and the development of new capabilities.

Investment funds are among the primary vehicles in the market for wealth generation and are a key element in the financial world. Asset managers are pivotal within the investment fund framework, guiding the search for the best strategies and practices in the market. FlexFunds explains the characteristics.

What are investment funds?

Investment funds are a tool within the wide range of options in the financial market that, by attracting resources from investors, focuses on creating a portfolio of assets and generating returns from them through professional management. Investment funds can be created from a diversified basket of assets, including stocks or bonds.

Regarding the types of investment funds, there are fixed-income funds, which represent a lower degree of risk and bet on alternatives like bonds. There are also equity funds, which focus on alternatives in secondary markets like stocks and are prone to greater volatility. Lastly, according to Blackrock¹ information, there are multi-asset funds, which bet on a more diversified and mixed asset portfolio.

As indicated by FlexFunds, effective product distribution is crucial to reaching a broad spectrum of investors and increasing the asset base under management. This allows fund managers to expand their reach and maximize profitability.

FlexFunds specializes in providing solutions to fund managers through the setup of independent investment vehicles via an asset securitization program that leads to the creation of listed products known as ETPs. These vehicles are designed for the management of strategies and global distribution to non-U.S. final investors.

Asset managers play a crucial role in the professional management of investment funds, adopting strategies to maximize returns and meet investors’ goals.

Options in the investment fund world

Among the multiple options in the market are exchange-traded funds, or ETFs. Their goal is to replicate the performance of an index like the S&P 500 on Wall Street, thus consisting of the same portfolio of assets.

There are other more specific variations, such as real estate investment funds or REITs, which allow exposure to real estate investments without having to acquire them directly, generating benefits through the professional management of these assets via leasing or property appreciation.

Additionally, there are other categories like hedge funds, which, through active management, seek to maximize their profitability via various strategies regardless of market conditions. This way, they can benefit from both bullish and bearish markets by taking different positions in the assets they bet on.

What is the role of asset managers?

Asset managers fulfill a professional role within funds and are responsible for adopting strategies to maximize the returns of investment instruments through a diversified portfolio. These professional managers can handle large fortunes but can also pool capital and provide exposure to smaller investors to vehicles that generally would not be within their reach.

To thoroughly meet their goals, asset managers must consider the investor’s risk profile and define the horizon and objectives they wish to achieve through this instrument. They must also deeply analyze the sector, market conditions, and the type of target asset to define the most convenient strategies according to each investor’s profile. Their mission is to consider all aspects that can influence an investment to make informed and responsible decisions about the investment vehicle.

The clients of asset managers are the final investors, so they must report on the performance of the instruments and, at the same time, offer clarity regarding the strategies used to achieve the stated objectives. This figure is governed by local and international financial authorities’ regulations, so they must strictly comply with these guidelines and ensure at all costs the investors’ interests, who must be able to access the annual report with the fund’s profitability and be informed promptly if there was a change in its composition, according to the Spanish financial entity BBVA².

FlexFunds highlights that the distribution and growth of investment products are fundamental to achieving success in a highly competitive financial market.

A growing asset management market

The consultancy firm PwC projects that global assets under management (AuM) will continue to expand by 2025³ and reach $145.4 trillion that year, representing a significant jump from the $111.2 trillion calculated in 2020, with an interesting dynamic recorded by regions like Latin America and Asia-Pacific.

By 2025, it is also anticipated that alternative asset classes, including real assets, private equity, and private debt, will double and reach $21.1 trillion. With this significant increase, they will represent approximately 15% of all assets managed worldwide, according to PwC.

The asset management industry is experiencing significant growth, driven by the increase in assets under management and the rise of alternative asset classes, necessitating a reevaluation of business structures, technology adoption, and the development of new capabilities.

To exploit the industry’s growth potential, it will be crucial for asset managers to reevaluate their business structures to focus on their strengths and reduce costs in other areas. Secondly, technology adoption is imperative as it will determine success or failure in an ever-changing environment.

Finally, developing new capabilities backed by innovative employment models will be essential for the industry’s reinvention. Identifying, developing, and retaining the right talent will be vital in this transformation process.

In conclusion, investment funds represent a pillar in the global financial landscape, offering investors diversified access to a wide range of assets and strategies managed by professionals.

In this context, solutions like those from FlexFunds play a crucial role in providing strategic tools for the distribution of independent investment vehicles. Their focus on asset securitization to create exchange-traded products (ETPs) facilitates access to non-U.S. final investors in global markets 

Ultimately, one of the keys to investment fund management depends on both the ability to adapt to changing market conditions and the capacity to offer effective and efficient solutions to meet investors’ needs worldwide.

Source:

¹ https://www.blackrock.com/co/educacion/fondo-de-inversion

²https://www.bbva.es/finanzas-vistazo/ef/fondos-inversion/gestoras-de-fondos.html#:~:text=Las%20gestoras%20de%20fondos%2C%20tambi%C3%A9n,de%20inversi%C3%B3n%20establecidas%20de%20antemano.

³https://www.pwc.com/ng/en/press-room/global-assets-under-management-set-to-rise.html