About Asset Management
All economies need efficient financial intermediation. It is a key policy concern for governments everywhere.
Professional asset managers match needs of savers of capital with those of users of capital. Savers are households, pension funds, insurance companies, endowments, governments, and corporate and bank treasuries. Users of capital are often the same.
Concentrating investments in one asset class—real estate, for example—is risky. Most savers don’t need more risk. They need a balanced and diversified approach to investing. A professional asset manager insures clients get diversified investing across many asset classes.
Professional asset management worldwide is now a $150 trillion business. Asset managers are responsible for buying a mix of investments that reflect the client’s risk profile. Asset management is based on Modern Portfolio Theory, a practical means of investing backed by decades of research and many Nobel Prizes.
Investors normally don’t think about spiritual goals when investing. They seek professionalism first. A professional investment manager knows how to match a client’s appetite for risks and rewards with diversified investments that reflect the client’s long-term investment goals.
PRIVATE EQUITY & REAL ESTATE
All economies require vibrant and growing private equity and real estate markets. But, private equity comprises only 3% of professionally managed assets worldwide. Despite wide media attention it is a marginal asset class, at best.
Global capital markets—comprising mostly bonds and shares—total many tens of trillions of dollars in value. The vast majority of professionally managed savings are invested in capital markets. Many asset managers avoid private equity for very good reasons.
Private equity is risky and illiquid. Risk means a higher probability of loss. Illiquid—a major risk itself—means an investor cannot get capital returned quickly when it’s needed.
Real estate is a key asset in any long-term savings plan. But, it must be in proportion to other asset classes. No investor should have more real estate than is needed to achieve investment goals. Often we see real estate is not more than 10% of a skilled, professional investor’s portfolio.
Many investors own too much private equity and real estate. They don’t need more. As a result, Safa Investment Services avoids these investments.
Derivatives (also known as structured products) play a key role in managing risks. But they are often used as speculative investments. About 97% of derivatives are for speculation, and only 3% for real-world risk management.
Derivatives, like private equity, have the highest commissions paid in the asset management industry. For nearly all investors derivatives are best described by Warren Buffett: weapons of mass destruction.
Safa Investment Services does not purchase derivative investments for its clients.