# Asset Management

> Asset managers invest money for clients through mutual funds, ETFs, pensions and separate accounts. Learn the main types, how they earn fees and how they invest.

Source: https://learn.tradelabsai.com/industry/asset-management/  
Track: The Trading Industry · Level: Intermediate · Updated: 2026-10-03  
Publisher: TradeLabs AI (https://tradelabsai.com). Education, not financial advice.  
Cite as: TradeLabs Learn, "Asset Management", https://learn.tradelabsai.com/industry/asset-management/

Asset management is the business of investing money on behalf of others: individuals saving for retirement, pension funds, insurers, endowments, governments and companies. Asset managers pool and invest that money through mutual funds, ETFs, separately managed accounts and private funds, and charge fees for doing so. The industry is enormous, and its biggest firms manage trillions of dollars each. Asset managers are the core of the buy side, and their trading decisions move markets every day.

## Main types of asset managers

| Type | Typical products | Clients |
|---|---|---|
| Traditional asset managers | Mutual funds, ETFs, separate accounts | Retail and institutional |
| Index and ETF providers | Passive index funds and ETFs | Everyone. See [What Is an ETF?](https://learn.tradelabsai.com/markets/what-is-an-etf/) |
| Hedge funds | Private funds with flexible strategies | Wealthy and institutional. See [Hedge Funds](https://learn.tradelabsai.com/industry/hedge-funds/) |
| Private equity and credit | Private company buyouts, private loans | Institutional |
| Wealth managers | Advice and portfolio management for individuals | Wealthy individuals |
| Pension and sovereign funds (asset owners) | Manage their own money or hire managers | Their beneficiaries |

The largest firm, BlackRock, has reported assets under management of more than $10 trillion in recent years, and the largest index providers have grown rapidly with the shift to passive investing. See [Active vs Passive Investing](https://learn.tradelabsai.com/portfolio/active-vs-passive-investing/).

## How asset managers earn money

| Fee | Typical form |
|---|---|
| Management fee | A percentage of assets, from very low for index funds to over 1% for some active funds |
| Performance fee | A share of gains, mainly in hedge funds and private funds |
| Expense ratio | The annual total cost of a fund, shown as a percentage |
| Loads and distribution fees | Sales charges on some mutual funds |

Because fees are tied to assets, the business grows with markets and client inflows. Competition from low cost index funds has pushed average fees down for years.

**Example: What an expense ratio costs**
An investor holds $50,000 in a fund with an expense ratio of 0.75% and another $50,000 in an index fund at 0.05%. Each year, the first costs about $375 and the second about $25. Over 20 years with growth, the difference compounds into thousands of dollars. Expense ratios are deducted inside the fund, so investors never see a bill, which is why checking them matters. See [Compounding and Geometric vs Arithmetic Returns](https://learn.tradelabsai.com/math/compounding/).

## The investment process

1. **Research:** analysts study companies, sectors and economies. See [Valuation Basics](https://learn.tradelabsai.com/fundamentals/valuation-basics/).
2. **Portfolio construction:** portfolio managers decide holdings and weights. See [Portfolio Construction](https://learn.tradelabsai.com/portfolio/portfolio-construction/).
3. **Risk management:** independent teams monitor exposures and limits. See [Risk, Position, Loss and Drawdown Limits](https://learn.tradelabsai.com/portfolio/risk-limits/).
4. **Trading:** buy side traders execute orders, often with algorithms. See [Execution and Sales Trader](https://learn.tradelabsai.com/industry/execution-and-sales-trader/).
5. **Operations:** settlement, accounting and reporting. See [Fund Accounting and NAV](https://learn.tradelabsai.com/industry/fund-accounting-and-nav/).
6. **Client service and distribution:** reporting and raising assets. See [Investor Reporting](https://learn.tradelabsai.com/industry/investor-reporting/).

## Fiduciary duty and regulation

Asset managers usually owe a fiduciary duty to act in their clients' best interests. In the US, funds are regulated under the Investment Company Act of 1940 and managers under the Investment Advisers Act of 1940, both overseen by the SEC. In the EU, UCITS rules govern most retail funds. See [Trading Regulators: SEC, CFTC, FINRA and NFA](https://learn.tradelabsai.com/industry/trading-regulators/).

## How asset managers move markets

| Activity | Market effect |
|---|---|
| Index fund flows | Buying and selling index members, especially around rebalances. See [Index Rebalancing](https://learn.tradelabsai.com/fundamentals/index-rebalancing/) |
| Large active trades | Price impact, often spread over days. See [Market Impact](https://learn.tradelabsai.com/orders/market-impact/) |
| Quarter end rebalancing | Flows between stocks and bonds. See [Rebalancing](https://learn.tradelabsai.com/portfolio/rebalancing/) |
| Proxy voting | Influence on company governance |

## Frequently asked questions

### What is asset management?

The professional management of investments on behalf of clients through funds, ETFs and managed accounts, in return for fees.

### How do asset managers make money?

Mainly through management fees charged as a percentage of assets, plus performance fees in some funds.

### What is the difference between an asset manager and a hedge fund?

Hedge funds are a type of asset manager, but they use more flexible strategies, serve wealthier investors and charge performance fees; traditional managers mostly run regulated public funds.

Next, learn who sits on each side of the market in [Buy Side vs Sell Side](https://learn.tradelabsai.com/industry/buy-side-vs-sell-side/).

## Continue learning

- Next lesson: [Buy Side vs Sell Side](https://learn.tradelabsai.com/industry/buy-side-vs-sell-side/)
- Previous lesson: [Hedge Funds](https://learn.tradelabsai.com/industry/hedge-funds/)
- Related: [Hedge Funds](https://learn.tradelabsai.com/industry/hedge-funds/): Hedge funds are private investment pools using flexible strategies, leverage and short selling. Learn the main strategies, fee structures, regulation and risks.
- Related: [Active vs Passive Investing](https://learn.tradelabsai.com/portfolio/active-vs-passive-investing/): Active investing tries to beat the market; passive investing tracks it at low cost. Learn the evidence on performance, the impact of fees and how to choose.
- Related: [What Is an ETF?](https://learn.tradelabsai.com/markets/what-is-an-etf/): An ETF is a fund that trades on an exchange like a stock. Learn how ETFs track an index, how they differ from mutual funds, their costs and how to choose one.
- Related: [Portfolio Manager](https://learn.tradelabsai.com/industry/portfolio-manager/): Portfolio managers decide what a fund holds and answer for its results. Learn the types of PMs, the daily work, skills needed and how people become PMs.
- Related: [Buy Side vs Sell Side](https://learn.tradelabsai.com/industry/buy-side-vs-sell-side/): The buy side invests money; the sell side provides trading, research and capital raising services. Learn the main firms, roles, incentives and career differences.