Even though investment banks offer both these services, there are lot of differences between asset management and investment banking as they are quite distinct to one another. Asset management and investment banking are both services offered by banks for the purpose of managing assets and investments, growing wealth, raising capital, financial planning, etc. While investment banking services are focused on large companies or entities, asset management services are also offered to individuals, given that these individuals possess large investment portfolios with a high net worth. The following article takes a closer look at both asset management and investment banking and explains the similarities and differences between asset management and investment banking.
What is Asset Management?
Asset management refers to the management of assets such as stocks, bonds, real estate on behalf of high net worth individuals or larger corporations. Asset management is aimed at finding the best most profitable assets to invest in, and growing income and wealth from the investments made in assets. An asset is evaluated for its risk, potential for high returns, financial health, etc. before an investment is made. Asset managers evaluate the risk of the asset, analyze all available data and information and then create a profitable investment strategy that meets the investor’s investment goals. As a result of the very high cost involved in asset management services, such services are usually purchased only by large entities or individuals with large high-value portfolios and investments. However, due to the volatility of the financial markets, an asset manager cannot guarantee a positive return all the time.
What is Investment Banking?
Investment banking focuses on assisting firms acquire capital and increase the value of their investments. Investment bankers also offer advisory and consulting services to clients and are sought after for their expertise and experience in managing investment portfolios. Investment banking also includes mergers and acquisitions advisory services, arrange initial public offerings to raise capital, underwriting of debt and equity, trading of stocks and bonds on behalf of investors, etc. Investment banks are distinct to commercial banks that offer retail banking services such as making loans, taking deposits, savings accounts, cheque services, etc. and are more focused on offering services to corporations and larger entities. Investment banking services are sought after customers such as corporation, governments, pension funds, hedge funds, mutual funds, finance companies, etc.
What is the difference between Asset Management and Investment Banking?
Asset management is mostly related to the management of various assets and investments as well as growing income, choosing the right assets to invest in and strive to meet investor’s goals. Investment banking, on the other hand, is more focused on assisting corporations with advisory services, mergers and acquisitions, raising capital through equity or debt offering, etc. The best way to explain the difference between asset management and investment banking is with an example. Let’s say company ABC wants to purchase company XYZ for $100 million. Company ABC will then approach their investment banker and ask them how these funds can be raised for the purchase. The investment bank will conduct research and come up with a plan to raise the funds through issuing debt. This is the sell side of the investment bank offering investment banking services. On the other hand, investment banks will be approached by individuals and larger entities looking to invest their funds in various assets. Then the asset managers can invest a portion of those funds in the debt issue. This is the buying side of the investment bank offering asset management services.
Summary:
Asset Management vs Investment Banking
• Asset management and investment banking are both services offered by banks for the purpose of managing assets and investments, growing wealth, raising capital, financial planning, etc.
• Asset management refers to the management of assets such as stocks, bonds, real estate on behalf of high net worth individuals or larger corporations.
• Asset management is aimed at finding the best most profitable assets to invest in, and growing income and wealth from the investments made in assets.
• Investment banking includes mergers and acquisitions advisory services, arrange initial public offerings to raise capital, underwriting of debt and equity, trading of stocks and bonds on behalf of the investor.
• While investment banking services are focused on large companies or entities, asset management services are also offered to individuals, given that these individuals possess large investment portfolios with a high net worth, etc.
Further Reading:
- Difference Between Asset Management and Wealth Management
- Difference Between Banking and Investment Banking