Asset Management vs Hedge Fund -The Differences

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!