The Interrelationships between Processes, Costs, and Risks in Asset Management

The global asset management industry can be divided into two broad categories, namely institutional asset management and retail asset management. These two categories have fairly different cost characteristics, productivity metrics and risk metrics. The institutional asset management groups include traditional investment advisory firms (such as UBS Asset Management), hedge funds (such as AQR), as well as private equity funds (buyout or venture capital such as Blackrock). This category of asset management firms deals directly with large institutions and is not concerned with the complexities of the retail business. The retail category includes the mutual fund companies (such as Fidelity and Vanguard) as well as the pension funds (such as TIAA-CREF); this category must maintain individual accounts for individual people with the number of retail clients usually being very high. The retail category requires, therefore, a higher level of technology than the institutional category (more elaborate websites, larger call centres etc.). This in order to deal with individual account registration, maintenance, accounting, and a host of other activities (see Duran 2013). There are also a number of asset managers who deal with both institutional and retail clients.