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IKOS Questions with Answers on Asset Management
Posted on :28-04-2016
Q1. What is asset management?
Asset management is an organisations coordinated activities to realise the full value of assets in delivering service delivery objectives. It is carried out over the whole asset lifecycle.
Q2. What is the difference between asset management and invest management?
Investment and asset are really close in meaning.
Investment is when you put your money in stock, bond or other financial instruments.
Whereas Asset is what you own generally referred to land, proprietorship , factory, etc.
Q3. What is Mutual Fund?
A mutual fund is one which is made up of money from lots of different individual investors, and then managed by a professional portfolio manager. Mutual funds invest in all the usual assets such as:
• Bonds• Equities• Derivatives
The amount an investor gains or loses in the fund is directly proportional to the amount they invest into the fund. Mutual funds typically have a target level of return and usually charge a management fee of 1-2% per annum.
Q4. What is Fund of Funds (FOF)?
A fund of funds is a fairly self-explanatory entity, it is any form of fund (usually mutual) which invests in other funds as a means of diversification. This is essentially one level of risk removed from being a standard fund, as you would assume that the funds the FoF invests in are themselves diversified for reduced risk.
The return of a FoF is likely to be lower than could be achieved in a standard fund.
Funds of funds will usually invest into a diverse set of hedge funds and private equity funds in order to attempt to reach high levels of returns.
Q5. What are the four key stages of the asset lifecycle?
- Planning: determination of asset requirements, based on an assessment of both service delivery needs and the capability of the existing asset base to meet these needs.
- Acquisition: procurement of assets to meet an identified service need, including the assessment of procurement options.
- Operation and maintenance: management and use of an asset to deliver services, including maintenance.
- Disposal: treatment of an asset that has either reached the end of its useful life, is considered surplus, or is under-performing.
Q6. What do asset management firms do?
Asset management is the process of deciding where best to invest money. Asset management firms are entrusted with clients money and invest it long-term. By investing in assets and markets growing in value, the firms hope to maximise their clients returns on their money.
Q7. How do they operate?
Asset management firms usually arrange their investments into distinct funds that are invested according to particular criteria. For example, a fund might invest in a mixture of bonds and equity (see glossary for definitions) from all around the world, or a much more strictly-defined set of assets.
Funds can be actively managed, where qualified fund managers use their judgement and experience to generate a good return, or passively managed by elaborate computer systems. Though managers tend to gravitate towards assets with the best returns, it is vitally important to reduce risk by maintaining a balanced portfolio.
Q8. What is equity?
A share, that is, a slice of the ownership rights in a company. Equities are stocks. When you buy stock, you become an owner in the company.
Stockholders can make money through dividend payments (a portion of the companys earnings distributed to investors, usually quarterly) and by selling their stock if the share price has risen since they purchased it.
Not all stocks pay dividends, and there is no guarantee that stock prices will go up - in fact, they could go down.
Q9. What are the trending issues in asset management?
Banks on the rise:
As asset management is less risky than traditional investment bank trading activities, lots of banks have been expanding their presence in the industry while slashing their core investment banking operations.
Traditionally asset management has been more about equity - shares in companies - than debt products such as corporate and government bonds. However, in the wake of the financial crisis, clients have started to prefer bonds to equity, as they provide more reliable, if smaller, returns than risky shares. However, some managers believe that, because equities are currently less in demand and therefore cheap, the trend is in the process of reversing, as investors realise they can scoop up shares at bargain prices.
The asset management industry is no exception when it comes to the landscape of increased regulation in the financial sector, and firms now need to spend more time and effort than ever before making sure theyre compliant with the latest rules. Fund managers also now have to be much more ready to explain their decisions to clients, with up-to-date information ready to back them up.
Q10. What is meant by Fixed income?
A general term for tradeable corporate debt products, particularly bonds. The name comes from the fact that debt products, unlike equity products, provide investors with a regular income from interest payments.
Q11. What is the term Bond refers to?
ANS: A tradeable piece of corporate debt.
Q12. What is a money market fund?
A money market fund is a mutual fund that invests in short-term holdings. MMFs are not insured but tend to be stable because of the less volatile nature of the short-term investments they hold. The return they offer fluctuates while the share price should always be $1. MMF shareholders, like other mutual fund investors, pay annual fees to cover fund management, marketing and other expenses, which can reduce the overall return.
Q13. What is ISO 55000?
The ISO 55000 series comprises three standards:
ISO 55000 provides an overview of the subject of asset management and the standard terms and definitions.
ISO 55001 is the requirements specification for an integrated, effective management system for asset management.
IS0 55002 provides guidance for the implementation of such a system.
Q14. What are the Benefits of optimised Asset Management?
The tangible results of joined-up, risk-based, whole life cycle asset management are increasingly proven around the world. They include:
- Alignment of processes, resources and functional contributions (instead of departmental silos and competing, short-term priorities).
- Creating a transparent audit trail for what is done, when and why.
- Better understanding and usage of data and information to provide informed and consistent decisions.
- Improved planning (especially capital expenditure).
- Consistent, prioritised and auditable risk management.
- Alignment and coordination of existing initiatives, including competency development.
- Greater engagement of the workforce, including leadership, communications and cross-disciplinary teamwork.