Lesson 2 of 7 · 13 min
The portfolio management process: planning, execution, feedback
Portfolio management runs in three repeating steps: plan by understanding the client and writing an IPS, execute by allocating assets, analysing securities and building the portfolio, then use feedback from monitoring, rebalancing and performance measurement to adjust.
In short
- Planning: understand the client's needs (objectives and constraints) and write the investment policy statement (IPS).
- The IPS may set a benchmark for later evaluation and should be reviewed regularly (for example every few years or after a major change in the client's situation).
- Execution: asset allocation (usually the decision with the greatest impact), security analysis (top-down and bottom-up) and portfolio construction (including risk management and trading).
- Feedback: monitoring and rebalancing, then performance measurement and reporting against the objectives and benchmark.
- Risk tolerance and constraints drive the mix: a long-horizon endowment can hold mostly growth and alternative assets; a regulated life insurer holds mostly high-quality fixed income.
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