Difference between revisions of "Portfolio Management"
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== Definition == | == Definition == | ||
− | '''Portfolio Management''' (PM) | + | '''Portfolio Management''' (PM) is the set of principles, tools, processes and management roles that underpin the organized and formal management of a [[Portfolio]] (collection) of financial positions (assets), contracts or other such legally defined economic artefacts. |
=== Types of Portfolio Management === | === Types of Portfolio Management === | ||
Practices and tools for portfolio management vary depending on: | Practices and tools for portfolio management vary depending on: | ||
− | * the nature of the portfolio (e.g. credit portfolios, securities, derivatives) | + | * the nature of the portfolio and its constintuent instrumetns (e.g. credit portfolios, securities, derivatives etc.) |
− | * the business model | + | * the business model of the [[Portfolio Manager]] (trading, buy-and-hold) |
* the business values, objectives and constraints (e.g., financial return, [[Sustainable Development Goals]]) | * the business values, objectives and constraints (e.g., financial return, [[Sustainable Development Goals]]) | ||
== Examples == | == Examples == | ||
− | Well developed areas with distinct portfolio management cultures and tools include | + | Well developed areas with the own distinct portfolio management cultures and tools include |
− | * [[Credit Portfolio Management]], as practised e.g., by commercial / retail banks, credit insurers and other similar entities. | + | * [[Credit Portfolio Management]], as practised e.g., by commercial / retail banks, credit insurers and other similar entities. This domain is characterised by the direct underwriting of credit risk, ongoing bilateral relationships |
* [[Market Risk Management]], as practised e.g., by investment banks and hedge funds. Characterised by the focus on short term trading strategies involving marketable securities and derivatives | * [[Market Risk Management]], as practised e.g., by investment banks and hedge funds. Characterised by the focus on short term trading strategies involving marketable securities and derivatives | ||
* [[Asset Management]], as practised by insurers and pension funds. Characterised by the focus on long-term investments strategies that match assets with liabilities | * [[Asset Management]], as practised by insurers and pension funds. Characterised by the focus on long-term investments strategies that match assets with liabilities | ||
Line 18: | Line 18: | ||
== Elements of Portfolio Management == | == Elements of Portfolio Management == | ||
− | Some common elements of portfolio management are: | + | Some common elements of portfolio management practices are: |
+ | * Organizational Aspects | ||
+ | * Data Infrastructure and Analytics / Measurement Tools | ||
+ | * Policies and Other Management Tools | ||
+ | |||
+ | |||
+ | In more detail: | ||
=== Organizational Aspects === | === Organizational Aspects === | ||
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=== Policies and other Management Tools === | === Policies and other Management Tools === | ||
* Portfolio Strategy | * Portfolio Strategy | ||
− | ** Steering Targets | + | ** [[Portfolio Steering]] Targets |
** Portfolio Limits | ** Portfolio Limits | ||
* Concentration Risk Measurement | * Concentration Risk Measurement | ||
Line 43: | Line 49: | ||
== Issues and Challenges == | == Issues and Challenges == | ||
− | * Portfolio Management activities have strong overlap with Risk | + | * Portfolio Management activities have strong overlap with [[Risk Management]] which can lead to role and responsibility overlaps and conflicts within an organization |
− | * Same underlying financial | + | * Same underlying financial products (e.g. credit products) can be managed according to different [[Business Model | business models]], even within the same firm |
== References == | == References == |
Latest revision as of 13:56, 29 May 2022
Contents
Definition
Portfolio Management (PM) is the set of principles, tools, processes and management roles that underpin the organized and formal management of a Portfolio (collection) of financial positions (assets), contracts or other such legally defined economic artefacts.
Types of Portfolio Management
Practices and tools for portfolio management vary depending on:
- the nature of the portfolio and its constintuent instrumetns (e.g. credit portfolios, securities, derivatives etc.)
- the business model of the Portfolio Manager (trading, buy-and-hold)
- the business values, objectives and constraints (e.g., financial return, Sustainable Development Goals)
Examples
Well developed areas with the own distinct portfolio management cultures and tools include
- Credit Portfolio Management, as practised e.g., by commercial / retail banks, credit insurers and other similar entities. This domain is characterised by the direct underwriting of credit risk, ongoing bilateral relationships
- Market Risk Management, as practised e.g., by investment banks and hedge funds. Characterised by the focus on short term trading strategies involving marketable securities and derivatives
- Asset Management, as practised by insurers and pension funds. Characterised by the focus on long-term investments strategies that match assets with liabilities
In the context of Sustainable Finance there is an emerging field of Sustainable Portfolio Management
Elements of Portfolio Management
Some common elements of portfolio management practices are:
- Organizational Aspects
- Data Infrastructure and Analytics / Measurement Tools
- Policies and Other Management Tools
In more detail:
Organizational Aspects
- Defining the scope of activities (including which portfolios, asset classes etc)
- Identifying the roles and high level objectives of portfolio managers
Data Infrastructure and Analytics / Measurement Tools
- Position Data
- Historical Data and Risk Analytics
- Scenario Analysis, Stress Testing
- Risk-based Measures and Portfolio Valuation
- Model Validation
Policies and other Management Tools
- Portfolio Strategy
- Portfolio Steering Targets
- Portfolio Limits
- Concentration Risk Measurement
- Stress Testing Exercises
- Capital Requirements
- Risk-Adjusted Returns
- Risk Capital Allocation
- Portfolio Optimization
Issues and Challenges
- Portfolio Management activities have strong overlap with Risk Management which can lead to role and responsibility overlaps and conflicts within an organization
- Same underlying financial products (e.g. credit products) can be managed according to different business models, even within the same firm
References
Disclaimer
This entry annotates a FIBO Ontology Class. FIBO is a trademark and the FIBO Ontology is copyright of the EDM Council, released under the MIT Open Source License. There is no guarantee that the content of this page will remain aligned with or correctly interprets the concepts covered by the FIBO ontology.