Investment Management

Investment management is a specialized field of finance concerned with the management of individual or institutional funds. Other terms commonly used to describe this area of finance are portfolio management, asset management, wealth management, and money management. In industry terms, an asset manager runs the money.

Investment management consists of five primary activities. Setting investment objectives begins with a thorough analysis of what the organization or client wants to achieve. An investment manager develops strategic guidelines with investment objectives in mind, taking into account any client-imposed investment limitations, legal regulatory constraints and tax restrictions. This task begins with deciding how to allocate assets in the portfolio. A portfolio is simply a set of investments that are managed for the benefit of a client or clients. Next the investment manager must select a portfolio strategy consistent with investment objectives and investment policy guidelines.

Portfolio strategies are generally classified as active or passive. The next step is to select specific financial assets to include in the portfolio, referred to as the portfolio selection problem. The theory of portfolio selection suggests how investors can construct portfolios based on two parameters. The latter parameter, mean return and standard deviation of return, is a measure of risk. Evaluating the performance of an asset manager is an important task. This function allows the client to determine the answers to questions, such as how the asset manager performed after adjusting for the risks associated with the planned active strategy, and how the asset manager achieved the reported returns.

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