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    What Do Portfolio Managers Actually Do?

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    February 14, 2014

    By Anusha Gupta

     

    Portfolio Manager

    Ask any finance student what they want to do when they pass out, and you’ll hear terms like:  hedge fund management, Investment banking and Portfolio management. It sounds like a bunch of heavy words, doesn’t it? One question that does not leave the mind is, if the finance students are going to do all of this, then how does the stock market work?

    Portfolio manager is a fancy word for the stock market guys. A portfolio manager is either a person who makes investment decisions using money other people have placed under his or her control or a person who manages a financial institution’s asset and liability (loan and deposit) portfolios. On the investments side, they work with a team of analysts and researchers, and are ultimately responsible for establishing an investment strategy, selecting appropriate investments and allocating each investment properly for a fund- or asset-management vehicle.

    Suppose you have 1000 rupees, now you could either invest it in a fixed deposit which will yield a return of 9% (approx) p.a. However if you want to increase the value of your money beyond this, then you turn to the capital markets. Now the capital markets deal with all kinds of securities which fluctuate through the passage of time. Investment in these securities requires technical expertise and the use of complex mathematical models. This is where portfolio managers come in.  A portfolio manager has broad knowledge of companies, company earnings and stock prices. They rely on a mixture of complex (mostly electronic) technical analysis and fundamental analysis of companies to help them choose appropriate investments for clients, which will not only increase the value of their money but also minimize risks.

    However, there some unavoidable risks associated with the capital markets which cannot be controlled, the managers use their own discretion for investments and they may turn out to be risky. This is why portfolio managers meet regularly with their clients to upgrade them on the position of their investment and keep continuous track of the market and their client’s needs. The job of a portfolio manager is not completely finance related they have to do sales pitches in front of clients (corporate houses).

    Portfolio managers are now essential to the system, with the increasing awareness and more and more people wanting to invest in capital market; their job holds a lot of importance.

    Views presented in the article are those of the author and not of ED.

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