Tackling Performance issues in Asset Management of Financial Services Firm

Asset Management firms earn profits by investing funds that have been gathered from a large number of investors

Such investment policies lure those people who are interested in stock markets but have less capability to tolerate risk. The basics are such that a win-win situation is created for both the firm and contributors of the scheme.

This industry has witnessed an increasing number of entrants, adding to the competition faced by the already existing ones. Differentiating oneself from the crowd demands tactical and strategic decisions, like never before. A class called "Alternative Investments" (like Hedge Funds, real estate, commodities and Private Equity) too pose problems for the traditional players of Asset Management Industry. The need-of-the-hour is to devise more innovative products to serve individual requirements.

The toughest part of running an asset management company is the need to "take care of a wide range of investors". Investors vary with respect to their appetite for risk and returns. This makes devising a suitable scheme a difficult task. Though a way out of this situation is the formulation of more than one scheme, but this is marked with yet another hurdle. This is because the act adds to the "number of areas to be managed for performance". The more are the schemes; greater will be the performance management issues. Moreover, from this fact stems another trouble, which is concerned with the changes in demographic make-up of the society. Such trends are necessary to be evaluated in case of Asset Management companies as this has to be reflected in the schemes.

Also, the risk aspect has intensified owing to the rise in number of "off-balance sheet acts". These instances cannot be spotted if one goes by the traditional methods of financial reporting; thereby leaving the organization in danger of continuing with harmful practices. It has been revealed that not only are individual hackers a threat to the databank but companies too are trying to acquire information from other competitor"s base. This demands adopting a professional attitude to tackle the problem.

Moreover, the number of financial products being offered in the markets has risen. With more choices lying in front, an effective study to weigh the costs and benefits of all of them is required. Consequently, a need for an effective and potent mechanism to take care of the progress is the most desired necessity.

The BSC (Balance Scorecard) approach simplifies the procedure of following the progress. KPIs can be framed in areas like finance, internal operations, performance and risk. Indicators like "returns increase index", "amount managed", "dividend declaring ratio" and "% drop in inflows" can be clubbed as "Financial Perspective". Internal Operations can be evaluated via "number of countries where the firm has presence", "number of overseas investors", "minimum denomination needed" and "sustenance period". Risk is an important aspect to be assessed. Parameters like "number of security breaches experienced in past one year", "number of security measures adopted" and "% compliance with the norms set". Performance can be had with measurement of metrics like "fraction of funds with multiple dividends", "number of cities from where investors come", "number of schemes in glo bal top 100" and "number of awards won".

A detailed scorecard that is prepared keeping into account the factors, which have a bearing on the performance of Asset Management firms will provide them a "balanced way to move ahead".