Investment management refers to the professional management of various financial assets and securities to meet specified investment goals. It is a dynamic process that involves asset allocation, portfolio optimization, risk management, and performance evaluation. With over $90 trillion assets under management globally, investment management plays a pivotal role in the global financial system. This article provides an overview of core concepts and key considerations in investment management.
Common investment objectives and investor profiles
Investment objectives guide the formulation of investment strategies and portfolio construction. Major investment goals include capital preservation, income generation, capital appreciation, etc. Different types of investors have distinct liquidity needs, risk tolerance levels, time horizons, tax concerns, and unique circumstances that shape their investment objectives.
Importance of asset allocation and diversification
Asset allocation refers to assigning percentages of investment capital to different asset classes such as stocks, bonds, real estate, etc. Diversification means spreading investments across different asset classes, market sectors, industries, and securities. Asset allocation and diversification help optimize investment portfolios by balancing risk vs. expected return tradeoffs.
Measuring investment performance and risk management
Key investment performance metrics include risk-adjusted returns, alpha generation, sharpe ratio, etc. Risk management techniques involve position limits, VAR models, stress testing, liquidity assessment, and monitoring market risk factors. Effective performance measurement and risk management are pivotal for investment success.
In summary, investment management integrates financial and strategic aspects to meet investor goals through prudent asset allocation, portfolio optimization, performance benchmarking and risk monitoring.