Asset Management Company (AMC) – Meaning, Functions, Fees, Examples

What is Asset Management Company?

Asset Management Company (AMC) is defined as an enterprise that manages customers’ funds by accumulating and investing them in various provisions such as stocks, real estate, bonds, and other investments. AMCs not only manage portfolios of high-net-worth individuals (HNWI) but also look after hedge funds, pension funds, mutual funds, index funds, and Exchange Traded Funds (ETFs) using funds from small investors and combining them into a single consolidated portfolio.

Geeky Takeaways:

• AMCs act as an intermediary between investors and investment instruments like bonds, stock, real estate, and other assets. The investors include HNWIs, retail and institutional investors, government organisations and private sectors, etc.
• The investors or clients believe in the company and expect to receive a greater amount of profit which would be shared with the money management company.
• AMCs can be also called money managers or money management corporations and to name a few include Vanguard Group, Fidelity Investments, T. Rowe Price and the list continues, which primely provides mutual funds and ETFs.

How Does an Asset Management Company (AMC) Function?

1. Providing Profitable Investment: The main function of an AMC is to make the best use of client’s asset in the most efficient, effective and profitable investment possible. So, as an initial step of investment, AMCs do a thorough research on the market and then analyses the data and facts so as to define the financial goals and objective. In this step of research and analysis, careful judgement of the risk associated with each financial deal is looked into.

2. Allocation of Assets: The next step is the allocation of assets, i.e., selecting the assets and securities in which investment would be carried on. After selection of assets, allocation of funds takes place to buy those assets and securities. The returns earned from the investments are the profit on the investment and those are shared between the fund manager and the investor.

3. Portfolio Building: Once, the market research and fund and asset allocation is conducted, it is time for the portfolio building. The fund managers tries to design a diversified and strong portfolio which can reap high profits for their clients. Lastly, after considering all the relevant factors, they take a decision to either buy, sell or hold those assets or securities.

4. Performance Review: Finally, the last work of an AMC is to timely review their investments and take justifiable decisions. This step can be called as the performance review. As the fund managers are using funds from investors, so they are liable to respond to queries and decisions taken by them. The fund managers should give proper justification as to why a particular asset is bought, sold or kept at holding position.

Asset Management Company

How to Choose an Asset Management Company (AMC)?

1. The first step involves finding and making the list of AMC. This can be done by checking websites, checking AMC directories, checking appraiser forums or blogs, and finally talking with the appraisers.

2. The second step is the analysis part and digging deeper into each AMCs. One needs to ask certain questions such as:

• Does the AMC have an excellent reputation and quality?
• Does it pay fairly and have convenient payment schedules?
• Does they have a professionally behavior with appraisers?
• Does the AMC expect a well done, credible appraise in return?

This step is the longest and crucial one as the customer has to investigate in deeper sense to understand and take the right decision in choosing the right AMC. Checking websites of each AMC is must considering facts like registration under the authorized board and check for any complaints. Read the following thoroughly: the policies and procedures, payment policies, appraiser program benefits, appraiser availability (reaching them in case of problem), appraiser bulletins and announcements, industry reference and training materials etc.

3. Narrow down the list, choose five to six AMCs who fits in the above criteria. As Tony Pistilli mentions “It’s better to get one to two appraisal orders per week from five or six clients vs. ten orders per week from just one AMC”. If one AMCs stops working in your area, you can still have other AMCs at hand to rely upon.

Who Governs Asset Management Companies (AMCs)?

In India, the mutual fund industry has a regulatory body. The AMCs comes under this mutual fund industry and have to be registered under Securities and Exchange Board of India (SEBI) to have the license to operate in the country. Similarly, in other countries there are regulatory boards who governs the AMCs.

Asset Management Companies Fees

1. Asset Management Companies most of the times charge a fee which is calculated based on the client’s total assets under management (AUM).

2. This fee is calculated as an annual percentage and is paid monthly by the clients. Suppose, consider an AMC charges 1% annual fee, that means it would charge ₹100,000 as annual fees for managing a ₹10 million portfolio. Since, the prices of the market fluctuates which directly affects the portfolio, this fee which is calculated and paid on monthly basis fluctuates as well. Let us consider, suppose, if the above ₹10 million portfolio increases by 2% in the next year, the management fee will also increase by 2%. On the other hand, if the portfolio of ₹10 million decreases by 2% in value, the fee would get automatically reduced by 2%. Therefore, the fee charged by AMC is in align with the percentage of AUM such that if the clients gain, AMC would also gain and if the portfolios of the clients makes lose, AMC’s income would also decline.

3. AMCs do have a minimum annual fee of ₹5,000 or ₹10,000 for customers who are regular investors having portfolio size of ₹500,000 or ₹1 million. For AMCs who specialises in hedge funds, charge an additional performance fees if returns generated are above a set benchmark (known as the “two and twenty” fee model).

Difference between Asset Management Companies and Brokerage Houses

Basis	Asset Management Companies (AMCs)	Brokerage Houses
Services Provided	AMC manage customers’ investments and usually hands-off approach is observed.	Brokerage houses is a platform for self directed investments and sometimes they provide portfolio management services.
Cost and fees	A percentage is charged as management fee from the Assets under Management (AUM).	Per trade charge is applied. Some brokers might offer flat-free accounts
Client Relationships	AMC assigns a fund manager to each customer and personalised service is provided.	With discount brokers, standard service is provided to all customers. Further, few houses offer tools and services for self management.
Risk Management	Looked after by the AMCs Investment Professional. The clients are not at the losing position.	Customers/Investors are liable for the risk associated with every investment although the brokers provide trading suggestions and guidance.

Examples of an AMC

AMCs are basically mutual fund providers and belong to those businesses. In addition to it, high profile banks and brokerage firms have a separate asset management division which works mostly for HNWI or institutions. Some private AMCs are also present and established in the investment sector.

1. Let’s take the example of RMB Capital, a private investment and advisory firm with $10 million approx. in AUM. RMB Capital has its headquarter in Chicago and 10 other officer surrounding US and hardly 142 employees. There are multiple divisions comprising of :

• RMB Wealth Management for wealthy retail investors
• RMB Asset Management for institutional investors
• RMB Retirement Solutions, which handles retirement plans for employers

2. Another example of AMC is JP Morgan, who manages client’s (individuals, corporations, governments) portfolio with the help of investment professionals. They are known for ETF investing, personalised accounts, flexible insurance policies, pension trust funds and sustainable investing.