2.0 Asset Classes
Asset classes represent the types of assets in which an entity invests its funds.
Typical examples include Equities, Fixed Interest, Managed Investments, Residential
Property, Commercial Property etc. Asset classes allow the classification of assets
based on their characteristics.
There are three categories of asset classes: physical, standard financial and derivative
financial.
Classes of physical assets are those which will hold tangible assets that may be
depreciated (but do not need to be) and where the number of units is always one.
Assets in physical asset classes can never be subject to corporate actions and do
not have an expiry date. Typical examples of physical asset classes include property,
artwork, coins and classic cars.
Standard financial asset classes hold assets represented as some number of units,
where an investor may choose to buy more units in the asset or sell down their holding.
Standard financial assets may be subject to corporate actions, but may never be
depreciated and do not have an expiry date. Typical examples of standard financial
asset classes include equities, fixed interest investments and mutual funds.
Derivative financial asset classes hold assets which are similar to standard financial
assets in that there are a number of units held which may not be one, but in this
case there are a number of contracts each of which cover some number of units in
an underlying asset (which may not beowned). Assets in these classes cannot be depreciated
and they do have an expiry date. A typical example of a derivative financial asset
class is options.
You may have up to 500 physical asset classes, with unlimited numbers of assets
in each class, and 499 financial asset classes also with an unlimited number of
assets in each class. Note that all of every asset class’ details may be modified
through the Asset Classes screen under System Setup > Asset Classes. Every asset
class may also have a default asset allocation table (see next section) so you do
not need to enter it every time you add an asset to that class (though you may modify
it if you like).
Each asset class in Manage Invest can have a set of user defined fields. User defined
fields are used to record information that may be unique to a given asset class,
but is not necessarily relevant to others, or not yet included in the software.
For example if your entity owns artwork, you may choose add Artwork as an asset
class (physical assets) and add in user defined fields of “Artist”, “Style” etc.
These fields are then displayed on the user interface when you add or manage assets
of the Artwork asset class.
3.0 Asset Allocation Categories
Asset allocation categories represent the categories of investments where the funds
of the entity end up when purchasing a given asset. In effect, the asset allocation
categories measure the exposure of the portfolio of assets to different asset allocation
categories.
When you set up a new entity in Manage Invest the software will load a default set
of asset allocation categories. You can modify this list to suit your needs and
there are no restrictions on the possible asset allocation categories.
Every asset has its own asset allocation table. The asset allocation table of each
asset contains a list of the asset allocation categories available in the entity,
together with a percentage showing the amount of the funds devoted to that asset
which are in that asset allocation category.
The usefulness of asset allocation categories is most apparent in the case of mutual
funds of other investments which may span multiple allocation categories. Assume
for a moment that you hold some units in a fund that is managed on your behalf.
This fund will invest in 60% domestic equity, 30% foreign equity and 10% cash. In
such a case it would be useful (and in some cases it may be a requirement) to keep
track of your total exposure to a given allocation category. This means that if
you purchase $ 100,000 in domestic equities yourself and put $ 80,000 into the managed
fund detailed above, your actual exposure to domestic equities is $100,000 + ($80,000
x 60%) = $148,000.
In Manage Invest you can define your target level of exposure to the different asset
allocation categories and you can also evaluate whether or not your current investments
meet that criteria.
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