Portfolio Management
Contents
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)
- the business values, objectives and constraints (e.g., financial return, Sustainable Development Goals)
Examples
Well developed areas 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
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 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
- Position Data
- Historical Data and Risk Analytics
- Scenario Analysis, Stress Testing
- Risk-based Measures and Portfolio Valuation
- Model Validation
Policies and other Management Tools
- Steering Targets and 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
- 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.