INVESTMENT AND PORTFOLIO MANAGEMENT

MODULE 1
INVESTMENT MANAGEMENT
Introduction
The term asset management is often used to refer to the management of investment funds, while the
more generic term fund management may refer to all forms of institutional investment, as well as
investment management for private investors. Investment managers who specialize
in advisory or discretionary management on behalf of (normally wealthy) private investors may often refer
to their services as money management or portfolio management often within the context of "private
banking". Wealth management by financial advisors takes a more holistic view of a client, with allocations
to particular asset management strategies.
Discretionary investment management is where the investment manager - the person making decisions
with regards to the most appropriate balance of investments in a portfolio - has discretion to make
changes to your portfolio as and when they deem appropriate.
Asset managers and investment managers both aim to make decisions that earn their clients the most
profit possible. Asset management focuses on handling a client's physical assets, while investment
management is a more general term for handling a client's investments.
Physical assets are tangible assets and can be seen and touched, with a very identifiable physical presence.
Examples of such physical assets include land, buildings, machinery, plant, tools, equipment, vehicles, gold,
silver, or any other form of tangible economic resource.
Portfolio management is the art and science of selecting and overseeing a group of investments that meet
the long-term financial objectives and risk tolerance of a client, a company, or an institution.
What is portfolio in asset management?
As per portfolio definition, it is a collection of a wide range of assets that are owned by investors. The said
collection of financial assets may also be valuables ranging from gold, stocks, funds, derivatives, property,
cash equivalents, bonds, etc.
Is An Asset Manager The Same As A Portfolio Manager?

The answer to this question is; sort of. Asset managers do manage portfolios. However, unlike dedicated
portfolio managers, asset managers also can manage cash and other tangible physical assets like land,
property, and items of value.

Like an asset manager, a portfolio manager handles your investments and other financial products that
make up your portfolio. While you control where your money goes--on their advice--they put the money
into the investment. As a team, you and the portfolio manager work to evaluate and re-evaluate how your
money is growing and adjust your investments if needed. Also like an asset manager, it’s the portfolio
manager’s job to analyze the market and make the most informed decisions about your money and
investments. Their guidance should consider your comfort with risk, expected returns, individual
circumstances, and financial goals.

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Definition of Investment Management
Investment management refers to the handling of financial assets and other investments—not only buying
and selling them. Management includes devising a short- or long-term strategy for acquiring and disposing
of portfolio holdings. It can also include banking, budgeting, and tax services and duties, as well.
The term most often refers to managing the holdings within an investment portfolio, and the trading of
them to achieve a specific investment objective. Investment management is also known as money
management, portfolio management, or wealth management.

Industry scope
The business of investment has several facets, the employment of professional fund managers, research
(of individual assets and asset classes), dealing, settlement, marketing, internal auditing, and the
preparation of reports for clients. The largest financial fund managers are firms that exhibit all the
complexity their size demands. Apart from the people who bring in the money (marketers) and the people
who direct investment (the fund managers), there are compliance staff (to ensure accord with legislative
and regulatory constraints), internal auditors of various kinds (to examine internal systems and controls),
financial controllers (to account for the institutions' own money and costs), computer experts, and "back
office" employees (to track and record transactions and fund valuations for up to thousands of clients per
institution).
Key problems of running such businesses:
Key problems include:
1. Revenue is directly linked to market valuations, so a major fall in asset prices can cause a
precipitous decline in revenues relative to costs;
2. Above-average fund performance is difficult to sustain, and clients may not be patient during times
of poor performance;
3. Successful fund managers are expensive and may be headhunted by competitors;
4. Above-average fund performance appears to be dependent on the unique skills of the fund
manager; however, clients are loath to stake their investments on the ability of a few individuals-
they would rather see firm-wide success, attributable to a single philosophy and internal discipline;
5. Analysts who generate above-average returns often become sufficiently wealthy that they avoid
corporate employment in favor of managing their personal portfolios.
Representing the owners of shares
Institutions often control huge shareholdings. In most cases, they are acting as fiduciary agents rather than
principals (direct owners). The owners of shares theoretically have great power to alter the companies via
the voting rights the shares carry and the consequent ability to pressure managements, and if necessary
out-vote them at annual and other meetings.
In practice, the ultimate owners of shares often do not exercise the power they collectively hold (because
the owners are many, each with small holdings); financial institutions (as agents) sometimes do. There is a
general belief that shareholders – in this case, the institutions acting as agents—could and should exercise
more active influence over the companies in which they hold shares (e.g., to hold managers to account, to
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ensure Board's effective functioning). Such action would add a pressure group to those (the regulators and
the Board) overseeing management.
However, there is the problem of how the institution should exercise this power. One way is for the
institution to decide, the other is for the institution to poll its beneficiaries. Assuming that the institution
polls, should it then: (i) Vote the entire holding as directed by the majority of votes cast? (ii) Split the vote
(where this is allowed) according to the proportions of the vote? (iii) Or respect the abstainers and only
vote the respondents' holdings?
Philosophy, process and people
The 3-P's (Philosophy, Process, and People) are often used to describe the reasons why the manager is able
to produce above average results.
Philosophy refers to the overarching beliefs of the investment organization. For example: (i) Does the
manager buy growth or value shares, or a combination of the two (and why)? (ii) Do they believe in market
timing (and on what evidence)? (iii) Do they rely on external research or do they employ a team of
researchers? It is helpful if any and all of such fundamental beliefs are supported by proof-statements.

Process refers to the way in which the overall philosophy is implemented. For example: (i) Which universe
of assets is explored before particular assets are chosen as suitable investments? (ii) How does the
manager decide what to buy and when? (iii) How does the manager decide what to sell and when? (iv)
Who takes the decisions and are they taken by committee? (v) What controls are in place to ensure that a
rogue fund (one very different from others and from what is intended) cannot arise?
People refers to the staff, especially the fund managers. The questions are, Who are they? How are they
selected? How old are they? Who reports to whom? How deep is the team (and do all the members
understand the philosophy and process they are supposed to be using)? And most important of all, How
long has the team been working together? This last question is vital because whatever performance record
was presented at the outset of the relationship with the client may or may not relate to (have been
produced by) a team that is still in place. If the team has changed greatly (high staff turnover or changes to
the team), then arguably the performance record is completely unrelated to the existing team (of fund
managers).
The Basics of Investment Management
Professional investment management aims to meet particular investment goals for the benefit of clients
whose money they have the responsibility of overseeing. These clients may be individual investors
or institutional investors such as pension funds, retirement plans, governments, educational institutions,
and insurance companies.
Investment management services include asset allocation, financial statement analysis, stock selection,
monitoring of existing investments, and portfolio strategy and implementation. Investment management
may also include financial planning and advising services, not only overseeing a client's portfolio but
coordinating it with other assets and life goals. Professional managers deal with a variety of
different securities and financial assets, including bonds, equities, commodities, and real estate. The
manager may also manage real assets such as precious metals, commodities, and artwork. Managers can
help align investment to match retirement and estate planning as well as asset distribution.

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 Running an Investment Management Firm
Running an investment management business involves many responsibilities. The firm must hire
professional managers to deal, market, settle, and prepare reports for clients. Other duties include
conducting internal audits and researching individual assets—or asset classes and industrial sectors. Aside
from hiring marketers and training managers who direct the flow of investments, those who head
investment management firms must ensure they move within legislative and regulatory constraints,
examine internal systems and controls, account for cash flow and properly track record transactions and
fund valuations.
Pluses and Minuses of Investment Management
Pros Cons
1. Professional analysis 1. Sizeable fees
2. Full-time diligence 2. Profits fluctuate with market
3. Ability to time or outperform market 3. Challenges from passively managed
4. Ability to protect portfolio in down times vehicles, robo-advisors

What Is a Robo-Advisor?
.
an online application that provides automated financial guidance and services.
.
"a robo-adviser programmed to build wealth over a decade"
.
Robo-advisors (also spelled robo-adviser or roboadvisor) are digital platforms that provide automated,
algorithm-driven financial planning services with little to no human supervision. A typical robo-advisor
collects information from clients about their financial situation and future goals through an online survey
and then uses the data to offer advice and automatically invest client assets.
The best robo-advisors offer easy account setup, robust goal planning, account services, portfolio
management, security features, attentive customer service, comprehensive education, and low fees.
Benefits of Using Robo-Advisors
The main advantage of robo-advisors is that they are low-cost alternatives to traditional advisors. By
eliminating human labor, online platforms can offer the same services at a fraction of the cost. Most robo-
advisors charge an annual flat fee of 0.2% to 0.5% of a client's total account balance. That compares with
the typical rate of 1% to 2% charged by a human financial planner (and potentially more for commission-
based accounts).
Robo-advisors are also more accessible. They are available 24/7 as long as the user has an Internet
connection. Furthermore, it takes significantly less capital to get started, as the minimum assets required
to register for an account are typically in the hundreds to thousands ($5,000 is a standard baseline). One of
the most popular robo-advisors, Betterment, has no account minimum at all for its standard offering. 6

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How Robo-Advisors Make Money
The primary way that most robo-advisors earn money is through a wrap fee based on assets under
management (AUM). While traditional (human) financial advisors typically charge 1% or more per year of
AUM, most robo-advisors charge around just 0.25% per year.
They are able to charge lower fees because they use algorithms to automate trades and indexed strategies
that utilize commission-free and low-cost ETFs. Because they charge lower fees, however, robo-advisors
must attract a larger number of smaller accounts in order to generate the same revenues as a pricier
advisor.
Management Investment Company
A management investment company is a type of investment company that manages publicly issued fund
shares. Management investment companies can manage both open-end funds and closed-end funds.
Open-End and Closed-End
Management investment companies issue shares of funds from pooled investment. Investors buy shares of
funds that incur sales commission charges as well as operational expenses. Funds management investment
companies manage must comply with U.S. securities regulations. Regulations support fair market activities,
investor education, and transparency.
Open-End Funds
An open ended fund means a mutual fund scheme that is open for buying / selling at any time. In other
words, you can buy / sell units of open ended fund schemes at any time. There is no maturity period in
open ended funds, which means that you can remain invested in the scheme for as long as you want.
Open-end management investment companies manage open-end funds. They can be offered as either a
mutual fund or exchange-traded fund (ETF). Open-end funds do not have a designated number of shares
available for trading. The management investment company can issue and redeem shares of open-end
mutual funds and ETFs at their discretion.
Closed-End Funds
A closed-end fund is a type of mutual fund that issues a fixed number of shares through a single initial
public offering (IPO) to raise capital for its initial investments. Its shares can then be bought and sold on a
stock exchange but no new shares will be created and no new money will flow into the fund.
An Initial Public Offer (IPO) is the selling of securities to the public in the primary market. It is the largest
source of funds with long or indefinite maturity for the company. An IPO is an important step in the growth
of a business. It provides a company access to funds through the public capital market.
The primary market is where companies issue a new security, not previously traded on any exchange. A
company offers securities to the general public to raise funds to finance its long-term goals. The primary
market may also be called the New Issue Market (NIM).

Closed-end management investment companies manage closed-end funds. They offer a specific number of
shares to the market in an initial public offering. Closed-end management investment companies do not
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create or redeem shares following the public offering. Closed-end funds trade daily on exchanges. They are
known to trade at a discount or premium to their NAV.

References;

1. Billings, Mark; Cowdell, Jane; Cowdell, Paul (2019). Investment Management. Canterbury, U.K.:
Financial World Publishing. ISBN 9780852976135. OCLC 47637275.
2. David Swensen, "Pioneering Portfolio Management: An Unconventional Approach to Institutional
Investment," New York, NY: The Free Press, May 2019.
3. Rex A. Sinquefeld and Roger G. Ibbotson, Annual Yearbooks dealing with Stocks, Bonds, Bills and
Inflation (relevant to long-term returns to US financial assets).
4. Harry Markowitz, Portfolio Selection: Efficient Diversification of Investments, New Haven: Yale
University Press
5. S.N. Levine, The Investment Managers Handbook, Irwin Professional Publishing (2019)
6. V. Le Sourd, 2018, "Performance Measurement for Traditional Investment – Literature Survey",
EDHEC Publication.
7. https://www.google.com/search?q=investment+management+meaning&rlz
8. https://www.investopedia.com/terms/i/investment-management.asp
9. https://corporatefinanceinstitute.com/resources/knowledge/finance/asset-management/