Difference Between Investment Banking and Asset Management

Edited by Diffzy | Updated on: September 14, 2022

       

Difference Between Investment Banking and Asset Management Difference Between Investment Banking and Asset Management

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Introduction

Finance is an expansive industry with various avenues for investment available. Two concepts widely associated with finance are asset management and investment banking. Both involve helping clients with their finances. Management as such is a very crucial part of the field of banking. However, when one talks about investment banking and asset management, he/she must have a clear understanding of both the concepts and the key differences between them. They are used in both banking management but are vastly different. Investment banking and asset management are the main pillars of the finance sector. Investment banking is defined as the specific division of banking related to the creation of capital for other companies, governments, and other entities. Asset management is defined as the practice of increasing the total wealth of a client over time by acquiring, maintaining, as well as trading investments that have the potential to grow in value. Investment banking requires great sales skills, while asset management requires great quantitative and analytical skills. This article attempts to outline the concepts of both investment banking as well as asset management. Further, it also aims at drawing the key differences between the two concepts both in a tabular form as well as in points.

Investment Banking vs Asset Management

The critical difference between investment banking and asset management is that investment banking works on the selling side, while asset management works on the buying side. Investment banking sells goods and services related to finance. On the other hand, asset management buys the same. This proves that investment banking and asset management are opposite to each other. Investment banking involves helping clients raise capital, creating financial plans and developing financial models,

collaborating with other professionals and communicating with clients. It is also concerned with developing and negotiating deals as well as researching and analysing market conditions. On the other hand, asset management is involved in meeting and efficiently communicating with clients to discuss strategies and assets, helping clients organize and improve portfolios along with analysing market trends to identify buying and selling opportunities for clients. It also includes preparing financial reports and forecasts and presenting to clients, and even collaborating with third-party organisations to make the best possible decisions for clients. Asset managers have wealthy individual clients who require assistance in managing their portfolios. Their responsibikities include working out the best investment plan for their clients. Investment bankers, on the other hand, generally have corporate clients, and they assist their clients in raising capital, mergers, acquisitions and more.

Difference Between Investment Banking and Asset Management in Tabular Form

Table: Investment Banking vs Asset Management
Parameters of Comparison
Investment Banking
Asset Management
Definition
Investment banking is defined as the specific division of banking related to the creation of capital for other companies, governments, and other entities.
Asset management is defined as the practice of increasing the total wealth of a client over time by acquiring, maintaining, as well as trading investments that have the potential to grow in value.
Skills
Investment banking requires great sales skills.
Asset management requires great quantitative and analytical skills.
Side of working
Investment banking works on the selling side.
Asset management works on the buying side.
Main activities
Investment banking involved helping clients raise capital, creating financial plans and developing financial models,
collaborating with other professionals, communicating with clients, developing, and negotiating deals as well as researching and analysing market conditions
Asset management is involved meeting and effectively communicating with clients to discuss assets and strategies, helping clients organize and improve portfolios analysing market trends to identify buying and selling opportunities for their clients and preparing financial reports and forecasts and presenting to clients and even collaborating with third party organisations to make the best possible decisions for clients.
Type of clients
Investment bankers, on the other hand, generally have corporate clients, and they assist their clients in raising capital, mergers, acquisitions and more.
Asset managers have wealthy individual clients who require assistance in managing their portfolios.
Capital
The critical job of an investment banker is to raise capital. This should be done regularly.        
Asset managers usually work in the field of managing money and assets.
Significance
An investment banker works on selling securities on behalf of his/her clients.
The asset manager provides technical support.

What is Investment Banking?

Investment banking is defined as the division of banking that is related to the creation of capital for other corporations and even governments. Investment banks underwrite securities (debt and equity) for various corporations, aid in the sale of securities, and help facilitate mergers and acquisitions, reorganizations, and even broker trades for both institutions and private investors. Investment banks provide guidance and advice to issuers regarding the issue and placement of securities.

Investment banks engage investment bankers. They help corporations, governments, and other groups plan and manage large projects. They save the valuable time and money of their clients by identifying risks associated with the project before the client moves forward. Investment bankers are experts who have the current investing climate at their fingertips. Therefore, businesses and institutions turn to investment banks for advice regarding the best plan for their development. This is because investment bankers can tailor their recommendations to the present state of economic affairs.

Services provided by investment banks include:

  1. Approval of proving security measures.
  2. Raising of capital
  3. Services involving research
  4. Advisory services
  5. Asset Management services
  6. Union and investment services
  7. Income and wealth services

Role of Investment Banking

Investment banks engage investment bankers. They help corporations and governments plan and manage large projects. They save valuable time and money for their clients by identifying the risks associated with the project before the client moves forward with the investment. Investment bankers are experts who have the current investing climate at their fingertips. Business institutions approach investment banks for advice on the best plan for their development. Investment bankers use their expertise and tailor their recommendations to the present state of economic affairs.

What does investment banking involve?

Investment banks assist in performing large and complex financial transactions. They provide advice on the worth of a company and the best structure for a deal, depending on whether the investment banker's client is considering an acquisition, merger, and/or sale. Often, their services include underwriting debt and equity securities for all types of corporations and providing aid in the sale of securities. They also help facilitate mergers and acquisitions, reorganizations, and broker trades for both institutions and private investors. They may also issue securities as a means of raising money for the client groups and create the necessary Securities and Exchange Commission documentation for a company to go public.

What is Asset Management?

Asset management is defined as the practice of increasing the total wealth of a client over time by acquiring, maintaining, as well as trading investments that have the potential to grow in terms of value. Professionals in the field of asset management perform this service for their clients. They are also known as portfolio managers and financial advisors. Often, they work independently, while others work for an investment bank or other financial institution.

Role of Asset Management

The main role of an asset manager is to determine what investments to make or avoid and also to achieve the client's financial goals within the client's risk tolerance levels. The investments may be stocks, bonds, real estate, commodities, alternative investments, or mutual funds. An asset manager is expected to conduct rigorous research using both micro and macro analytical parameters. This includes a thorough statistical analysis of prevailing market trends and reviews of corporate financial documents. It also involves anything that would aid in achieving the stated goal of client asset appreciation.

The Job of an Asset Manager

Initially, an asset manager meets with a client to understand the client's long-term financial objectives and to also understand the amount of risk that the client is willing to assume. Then, the manager will propose a mix of investments in line with the client's objectives. The asset manager is completely responsible for creating a portfolio for the client, overseeing it every day and even making changes to it as needed, and communicating regularly with the client about those changes.

Responsibilities of an asset management company/ asset manager:

  1. Analysis of financial statements
  2. Portfolio allocation. This includes ensuring a proper mix of stocks and bonds.
  3. Equity research, sell and buy recommendations.
  4. Financial advice and plans.
  5. Estate planning and retirement planning, and asset distribution.

Types of Asset Management

  1. Financial asset management: Asset management involved with the financial sector. This can be of two types:
  2. Active asset management: this involves active tasks like studying the client's assets to plan and look after the investments. All the matters are looked after by the asset managers, and recommendations are provided on the basis of the financial health of each individual client. Active asset management costs more as more workload is involved.
  3. Passive asset management: assets of a client are allocated to mirror a market/sector index. Passive asset management is not very laborious. It is also considered to be less tailored, requires less looking after, and is, therefore, cheaper for investors.
  4. Physical asset management: The practice of managing the entire life cycle of physical as well as infrastructural assets like structures, production, and service plant, power, water, and waste treatment facilities, distribution networks, transport systems, buildings, and other physical assets.
  5. Public asset management: Public asset management expands the definition of enterprise asset management by incorporating the management of all securities of value to a municipal jurisdiction and its citizens' expectations.
  6. IT asset management: the set of business practices that join financial, contractual, and inventory functions to support life cycle management and strategic decision-making for the IT environment.

Main Differences Between Investment Banking and Asset Management In Points

  1. Investment banking is defined as the specific division of banking related to the creation of capital for other companies, governments, and other entities. Asset management is defined as the practice of increasing the total wealth of a client over time by acquiring, maintaining, as well as trading investments that have the potential to grow in value.
  2. Investment banking requires great sales skills, while asset management requires great quantitative and analytical skills.
  3. Investment banking works on the selling side, while asset management works on the buying side.
  4. Investment banking is involved with helping clients raise capital, creating financial plans and developing financial models, collaborating with other professionals, communicating with clients, developing and negotiating deals as well as researching and analysing market conditions. On the other hand, asset management is involved meeting and effectively communicating with clients to discuss assets and strategies, helping clients organize and improve portfolios analysing market trends to identify buying and selling opportunities for clients, preparing financial reports and forecasts and presenting to clients and even collaborating with third party organisations to make the best possible decisions for clients.
  5. Investment bankers generally have corporate clients, and they assist their clients in raising capital, mergers, acquisitions and more, whereas asset managers have wealthy individual clients who require assistance in managing their portfolios. Asset managers work to make the best investment decisions for every individual client.
  6. The main work done by an investment banker is raising capital for their clients on a regular basis. Asset managers generally work in the field of managing money and assets.
  7. An investment banker works on selling securities on behalf of his/her clients, while an asset manager provides technical support.

Conclusion

Investment banking and asset management are pillars in the same field. However, they are still vastly different. Investment banking mainly works on the selling side. On the other hand, asset management mainly works on the buying side. Investment banking sells goods and services related to finance, while asset management buys goods and services. Investment banking is that sector of a bank that provides services like capital raising, mergers, and acquisitions to the government and also corporations. However, asset management is often considered subordinate to investment management. It reflects on being the backbone of business markets and other types of public support infrastructure. Asset management signifies the management as well as governance of assets on behalf of their clients, while investment banks and their methods are the financial assistance that provides advisory services to the government, corporations, and individuals. This article has attempted to explain the key differences between the two concepts. It has explained the concept of investment banking, its services, role etc.


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"Difference Between Investment Banking and Asset Management." Diffzy.com, 2022. Sun. 27 Nov. 2022. <https://www.diffzy.com/article/difference-between-investment-banking-and-asset-management-641>.



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