Hedge funds and asset management are two important types of investment options. Though they are investment options but there are significant differences between asset management and hedge fund. The main purpose of asset management is to maintain an investment portfolio proficiently and save money on the investment. On the other hand, Hedge fund utilizes high-risk investment strategies to minimize the investment risk and deliver better ROI.
What is Asset Management?
Asset management is a very important term in finance. Usually, asset management refers to individuals or firms that manage the assets of other people. Here, the asset management firm develops and executes an investment plan and tries to maintain the assets cost-effectively. Most asset management firms invest a large amount of money on behalf of the investors to get a high profit. Generally, large companies, insurance companies, and companies that are not able to maintain their assets invest in this type of funds. Companies have two types of assets: fixed and current assets. They invest in fixed assets for the long term and current assets for the short term. Some key advantages of asset management for large companies are –
- Asset management allows large companies to keep track of their assets
- Companies can easily recover their invested assets and get higher returns
- Asset management firms regularly check the investment and ensure the accuracy of amortization rates
- Asset managers identify potential investment risks and execute investment plans accordingly
- Asset management allows the companies to remove ghost assets from the inventory
How does Asset Management Works?
All asset management works to achieve two goals: gain profit and minimize investment risk on behalf of the investor. Though the working procedure of asset management differs depending on the asset manager but they have some common characteristics. An asset manager first meets with the potential investor to discuss the goal of the investment. They also discuss how the asset manager will execute the plan to minimize the investment risk as well as how much the investor will invest. When both parties meet the agreement term, the asset manager opens an account for the investor. Once the account is set up, the asset manager will analyze the investment risks and then execute the investment plan to make the most profit. Here, the asset manager decides where to invest the assets.
What is Hedge Fund?
A hedge fund is considered as a type of offshore investment fund that usually invests in relatively liquid assets. According to many financial experts, it is one of the complicated investment options that investors get to invest their funds. In a hedge fund, the asset manager uses various investment strategies to invest money and gain profit. Here the asset manager uses borrowed money, trading esoteric assets, and various other methods to overcome the average investment return. A hedge fund is always considered as an alternative investment option and compared to other investment options it is much riskier. Moreover, hedge funds also charge higher fees compared to other investment options. But that being said, investing in a hedge fund will allow you to make more profit from your investment. Some common advantages of investing in Hedge Fund are –
- With a hedge fund, you can gain profit from both rising and falling equity and bond markets
- Hedge funds minimize the volatility and overall risks of the investment
- Hedge fund offers a variety of investment option so the investors can easily customize their investment portfolio
- Hedge funds will give you access to worlds some of the most talented investment managers
How does Hedge Fund work?
The working procedure of a hedge fund is a bit different from other investment options. The best part of a hedge fund is, that it can invest capital anywhere in the market and apply any kind of investment strategy. Hedge funds usually prefer public market investment and more uncommon trading techniques like short trading. Hedge funds also charge fees which are very rare in other investment options. Basically, hedge funds collect money from different investors and put them into a pooled fund, and then invest the money to earn better returns. Moreover, hedge funds are not heavily regulated so they always try to make a profit regardless of the market condition.
Difference between Asset Management and Hedge Fund
|Characteristic||Asset Management||Hedge Fund|
|Investment Model||Here, investments are made on behalf of the investors to make a profit. Asset management is a traditional type of investment option.||Here, pooled funds are created from various investments and then invest in the assets to make a profit. Hedge funds are alternate investment vehicles.|
|Incentive Structure||The incentive structure of asset management depends on how the asset manager has executed the investment plan as well as the current market condition. Asset management usually charges a fixed management fee. Usually, asset management doesn’t charge any performance fees.||Here, the incentive structure depends on how well the fund performs in a given period. Hedge funds earn from management fees, performance fees, etc. Hedge funds have a high-powered incentive structure based on a 2/20 model.|
|Prime Brokerage||Asset management minimizes investment risks and losses to increase profit. Various stock exchanges are the prime brokerages of asset management. So, the return of an investment depends on the performance of stock exchanges and other investment sectors.||Hedge funds usually try to boost the expected returns of their investment. Investment banks and other financial institutions are the prime brokers of a hedge fund. The return of an investment depends on the performance of the investment banking industry.|
|Legal Structure||Asset management funds are heavily regulated. The SEC regulation does apply to asset management. Asset managers can’t use all the investment opportunities because of the heavy regulation.||Hedge funds have less regulatory burden meaning they are not heavily regulated. The SEC regulation does not apply to hedge funds. Hedge fund managers can easily use investment opportunities.|
Best Asset Management Funds of 2022
- Schwab S&P 500 Index Fund
- Axis Bluechip Fund
- Fidelity ZERO Large Cap Index
- Mirae Asset Large Cap Fund
- Parag Parikh Long Term Equity Fund
- Shelton NASDAQ-100 Index Direct
- BGF World Energy A2
- UTI Flexi Cap Fund
- Axis Midcap Fund
- Crocodile Capital 1 Global Focus
- Kotak Emerging Equity Fund
- Axis Small Cap Fund
- SBI Small Cap Fund
- SBI Equity Hybrid Fund
- Mirae Asset Hybrid Equity Fund
Best Hedge Funds of 2022
- Columbus Hill Capital Management
- ACK Asset Management
- Jericho Capital Asset Management
- Night Owl Capital Management
- Renaissance Technologies LLC (Medallion fund).
- Bridgewater Associates
- Man Group Ltd.
- Citadel LLC.
- TCI Fund Management Ltd.
- SRS Investment Management
- Whale Rock Capital Management
- Fairholme Capital Management
- Tiger Management
- Wedgewood Partners
- Adage Capital Partners
FAQs about Asset Management vs Hedge Fund -The Differences
What are the popular Hedge Fund strategies?
Some of the popular hedge fund strategies are –
- Long/Short Equity
- Equity Market Neutral
- Merger Arbitrage
- Global Macro
- Volatility Arbitrage
- Convertible Bond Arbitrage, etc.
Is BlackRock a hedge fund or asset manager?
Established in 1988, BlackRock is the world’s largest asset manager. In fact, it is an American multinational investment management corporation with more than 10 trillion dollars in assets under management!
Who is the largest asset manager in the world?
Some of the largest asset managers in the world are –
- BlackRock; Country: U.S.
- Vanguard Group; Country: U.S.
- UBS Group; Country: Switzerland
- Fidelity Investments; Country: U.S.
- State Street Global Advisors; Country: U.S.
- Morgan Stanley; Country: U.S.
- JPMorgan Chase; Country: U.S.
- Allianz Group; Country: Germany
- Goldman Sachs; Country: U.S.
- T. Rowe Price; Country: U.S.
- Invesco Ltd.; Country: U.S.
- Amundi (a division of Credit Agricole Group); Country: France
- Bank of New York Mellon; Country: U.S.
- Legal & General; Country: U.K.
- Prudential Financial; Country: U.S.
Is Blackstone owned by BlackRock?
Yes, BlackRock owns Blackstone. In 1995, BlackRock bought Blackstone for $250 million.
What are the types of asset management?
There are six types of asset management available. They are –
- Digital Asset Management (DAM)
- Fixed Asset Management.
- IT Asset Management (ITAM)
- Enterprise Asset Management.
- Financial Asset Management.
- Infrastructure Asset Management.
Last Updated on August 28, 2022 by Ana S. Sutterfield