What Is Capital Financial Management?

Geri Terzo

Money can be managed in different ways and by various types of professional investors. The capital may refer to the money or assets that are being managed, while a capital asset very specifically refers to a physical, tangible asset, such as a piece of equipment, land, building, or machinery. Capital financial management can refer to professional money management or the general oversight of capital assets.

Businessman with a briefcase
Businessman with a briefcase

By design, capital assets are not the most liquid of investments, which means they cannot quickly be sold to generate cash, unlike many stocks and bonds. Ownership of capital assets is expressed on a company's financial statement, or balance sheet. Often, capital assets increase in value over time. Throughout this type of capital financial management, the owner usually holds tight to the assets and only seeks to sell them in the event that the company is going through some type of restructuring, in accordance with a court-ordered sale in the event of a bankruptcy or to coincide with a change in the direction of the core business.

In the practice of another type of capital financial management, an asset manager firm might oversee capital, or money, on behalf of institutional investors, for instance. Pension funds, endowments, and corporations are among the institutional investors that might turn to a money manager to properly allocate money on behalf of investors. Investors pay the financial manager fees based on the amount of money being invested, the investment strategy, and the type of investment vehicle that is being used.

Throughout capital financial management, an asset manager might direct capital into one or more of a number of categories, known as asset classes. Categories include stocks, including many different variations on these assets, and bonds, including government and corporate debt, as well as real estate, currencies, and commodities, such as oil contracts. Depending on the type of capital financial management, the asset manager applies different investment strategies to these asset classes, with some taking on more risk and promising greater returns, or profits, than others.

Professional money managers have discretion in the types of assets to buy and sell, although an investment strategy is adhered to. For instance, one investment fund might be designed to invest in emerging market stocks, representing equity opportunities in developing nations where there is room for growth but also inherent risk. The professional money manager might decide that one region is too risky at the present time and instead buy stocks from a different emerging economy and remain completely within the latitude that the investment strategy allows.

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