Portfolio Management

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Definition

Portfolio Management (PM) denotes a set of principles, tools, processes and management roles that aim to underpin the management of a portfolio (collection) of financial positions (assets)

Types of Portfolio Management

Practices and tools for portfolio management vary depending on:

  • the nature of the portfolio (e.g. credit portfolios, securities, derivatives)
  • the business model (trading, buy-and-hold)

Examples

Well developed areas of with distinct portfolio management cultures and tools include

  • Credit Portfolio Management, as practised e.g., by commercial / retail banks, credit insurers and other similar entities. 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

Elements of Portfolio Management

Some common elements of portfolio management are:

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

Policies and other Management Tools

  • Limits
  • Concentration Risk
  • 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
  • Same underlying financial product (e.g. credit) 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.