Asset Management vs Private Equity (Expert Review)

As I might have mentioned in previous articles I used to work in the financial industry for nearly two decades. I was both in investment banking and asset management so I have a few experiences which will hopefully be useful for this article. 

The financial world can usually be distinguished between the Sell-side and the Buy-side. The Sell-side is typically what investment banks offer, i.e. the packaging of products, selling of equity and bond offerings as well as advisory services to corporates. The Buy-side are the organisations on the other side of that table, those with pockets looking to invest and generate returns for themselves or clients. 

Both, Asset management and private equity are on the Buy-side, meaning they are in the business of generating returns for the clients in exchange for fees which are usually broken down into management fees (fees charged for the assets managed) and performance fees (if certain levels of performance are reached over a year you get that extra fee income).

Key Points

• Asset management firms operate in pretty much every investable field globally, while private equity firms focus on a subset of the investable universe. 
• The distinction between asset management and private equity is that asset management firms invest in public equities, while private equity firms invest in privately held companies. 
• Some of the largest asset management firms like BlackRock do have dedicated private equity divisions. 
• Some of the largest asset managers like BlackRock and UBS will have dedicated private equity teams that offer funds to their investor base. 
• Fees tend to be higher for private equity-based investments compared to traditional investment management offerings. 
• Private wealth management is dealing with managing the assets and affairs of wealthy clients, while asset management is focused on maximizing returns for clients.

Is asset management the same as private equity?

You could argue that both asset management and private equity are in essence investment management firms. Investing investor capital in search of returns in exchange for fees. 

The distinction, however, is the field both companies operate. Asset management firms, for example, operate in pretty much every investable field globally. Be this in public equities, fixed income (bonds), currencies, real estate, etc. Private equity, meanwhile, is purely specialising in a subset of the investable universe, namely private equity offerings usually in a specified sub-sector like technology, biotech, etc. 

Some of the larger asset management firms like BlackRock do have dedicated private equity divisions while some of the larger private equity houses like Blackstone also engage in the management of assets usually through hedge fund seedings where fees are typically higher. 

What is the difference between investment management and private equity?

Asset management or investment management typically only invests in public equities. This means they buy and sell assets of listed securities you can find on global exchanges. You, as a private investor will also have access to the same securities if you have a brokerage account for example. 

Private equity is s a part of the financial industry that involves the buying and selling of privately held companies, i.e. company stock which is not listed on a public exchange. Private equity firms typically invest in non-public companies that are struggling and need capital to turn around their fortunes. That also means that is usually not investable for a private investor. 

Moreover, private equity firms also can buy entire companies or controlling interests in firms which means they will also have executive powers through management and boards to change the strategic direction if they think it would be beneficial long term.

Do asset managers invest in private equity?

Yes, some of the largest asset managers like BlackRock and UBS will have dedicated private equity teams that offer funds to their investor base. This makes sense for an asset management firm that, by definition, wants to build a diversified and robust platform where any product can be sold, regardless of what market conditions offer. 

The asset management’s private equity franchise is obviously totally separate from the more traditional or public market-oriented investment management services. 

Fees tend to be higher for private equity based investments compared to traditional investment management offerings. 

What is the difference between private wealth management and asset management?

Both private wealth and asset management are looking to maximise or optimise returns for their clients and customers. 

Private wealth management is dealing with managing the assets and affairs of wealthy clients. By wealthy, that usually means total liquid investable assets of $5 million or more. Some private wealth managers will lower that entry-level amount but to get through the door at some of the most prestigious private banks you would need to show at least a net worth of seven or eight digits.

In order to be classified as a UHNW (Ultra High Net Worth) client you would need to show liquid assets of between $30-50 million. Services, however, extend way beyond just managing your assets. It covers tax advice, will planning and any sort of service you could think of. That of course comes in exchange for a healthy fee which is typically in the range of 1.5% to 2.5%. In comparison, asset managers typically charge 0.25%-0.5% for managing an investment fund or ETF. 

Conclusion

Asset management and private equity are both investment management firms that invest in order to generate returns for their clients. However, the distinction between the two is that asset management firms invest in public equities, while private equity firms invest in privately held companies. 

Asset management firms typically invest in a variety of fields, while private equity firms specialize in a specific subset. Additionally, private equity firms usually have more control over the companies they invest in, while asset management firms do not. Fees for private equity-based investments are usually higher than traditional investment management offerings. 

Private wealth management is similar to asset management, but private wealth managers usually only work with wealthy clients who have a net worth of $5 million or more.