Investment management involves the professional management of various assets and securities including shares, bonds, commodities and other securities for meeting the particular investment goals for the advantages of the investors.
· Insurance companies
· Pension funds
· Educational establishments
· private investors via investment contracts
· collective investment schemes such as mutual funds
The investment management of collective investments is also known as Asset Management. It also includes investment management for private investors and all forms of institutional investment. Investment managers who are experts in discretionary management for wealthy private investors also termed their services as wealth management or portfolio management in perspective of private banking.
Investment Portfolio Management involves implementation of a wide range of investment styles of fund management.
· Growth at a reasonable price (GARP)
· Market neutral
· Small capitalisation
Challenges of Investment Portfolio Management
· Revenue is correlated to the market valuations directly therefore major fall in asset prices can lead to steep decline in revenues related to costs
· Difficult to sustain above-average fund performance and clients may get impatient during periods of poor performance
· Successful fund managers are high-priced and are headhunted by competitors
· Fund performance depends on the unique skills of the fund manager
· Analysts who earn above-average returns manage their personal portfolios on their own.
3 Ps of Investment Portfolio Management
· Philosophy means the beliefs of the investment organization.
· Process is the procedure for implanting the overall philosophy.
· People constitute the staff including the fund managers.
There are four common asset classes including real-estate, commodities stocks, and bonds. Investment portfolio management firms are responsible for allocating the funds among the various classes of assets and also among the individual securities within each such asset class. Asset classes demonstrate varied market dynamics, and interaction effects. The performance of the fund depends on the allocation of money among asset classes.
As per some research studies, the allocation of funds among asset classes exhibit more projecting power in determining portfolio return as compared to selecting individual holdings. The successful investment manager constructs the asset allocation and the individual holdings separately for breaking certain benchmarks.
Investment portfolio management involves studying the long-term returns to different assets and analysing the holding period returns. For example, during the longer periods of time, equities may yield higher returns than bonds, and bonds may yield higher returns than cash. As per the financial theory, equities are riskier than bonds and bonds are more risky than cash.
The degree of diversification is considered by investment portfolio managers against the asset allocation and planned holdings list is constructed. The list comprises of the details regarding what percentage of the fund is required to be invested in a specific stock or bond.
The effective diversification needs the effective management of the following factors.
· Relationship between Asset returns and the liability returns
· Issues internal to the portfolio
· Cross-correlations between the returns