Portfolio Manager: Everything You Need to Know

Portfolio Manager: Everything You Need to Know
Nakla Team
Fintech Group
Feb 7, 2023
Mins Read
Last Updated
Feb 7, 2023
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Portfolio Managers hold years of expertise and talent in handling financial assets actively and passively. They are highly trained and know the ins and outs of making investment decisions on their client's behalf. They are distinct from mass-market or retail investment advisers because they handle higher sums of cash for fewer customers. This frequently leads to decreased management fees. 

What is a portfolio manager?

A portfolio manager refers to a financial services practitioner who handles investment portfolios for people or organizations. Customers hire them to handle financial methodologies that can generate profits via a combination of securities and investment instruments.

From strategy development to execution, these portfolio managers are in charge of the whole investing process. They are accountable for various responsibilities, such as interacting with clients, acquiring and selling assets, preparing reports and financial predictions, and picking the best investments.

A portfolio manager wields significant power over a fund, whether it is a mutual fund, venture capital fund, or exchange-traded fund. The managers of such a fund will have a direct impact on the fund's total results. They are often seasoned financiers, dealers, or analysts with solid financial management credentials and a proven record of continuous performance.

A portfolio manager can be active or passive, depending on their background. A manager's investing strategy replicates a specific market index if they employ a passive approach. Leveraging that market index as a baseline is critical because an investor should assume relatively long results.

On the other hand, a manager can adopt an active way of investing, attempting to outperform average market returns continuously. The portfolio manager is particularly significant in this circumstance since their investing strategy directly affects the fund's performance. For further details on the investing method, prospective investors may review the marketing materials of an active fund.

What does a portfolio manager do?

A portfolio manager is someone who focuses on asset management and helps customers handle their financial portfolios. These individuals operate independently or as part of investment banks, mutual fund organizations, insurance agencies, or equity corporations.

These managers assist investors in pooling their cash in the most advantageous location to boost revenue. They thrive in asset allocation and constantly optimize market risks. They help their wealthy customers handle their wealth by working with investors to attain financial goals.

So, how do these managers go about meeting their investors' financial objectives? To add worth, many portfolio managers apply the six processes outlined below:

Analyze the Client's Motive:

Individual clients often have lower investments with relatively short periods. In contrast, institutional clients often invest greater sums and have significantly more extended periods. Managers will consult with every customer to assess their targeted return and risk appetite.

Select the Optimal Asset Class:

Depending on the customer's investment objectives, managers select the most appropriate asset types (equities, treasuries, property investment, venture capital, etc.).

Perform Strategic Asset Allocation:

Strategic Asset Allocation is the procedure of establishing weights for every asset class in the customer's portfolio – for example, 60% stocks and 40% securities – at the start of investing cycles so that the portfolio's risk and return trade-off is consistent with the customer's goal. Portfolios must be rebalanced on a regular basis because asset weights might diverge dramatically from their initial allocations during the investment period owing to unanticipated returns from diverse assets.

Perform Tactical Asset Allocation and Insured Asset Allocation:

Tactical Asset Allocation and Insured Asset Allocation are two terms that refer to various methods of altering asset weights across portfolios over an investing term. TAA alters asset weights depending on capital market chances, while IAA modifies asset weights based on the current customer's current wealth.

Handle Risk:

Portfolio managers have complete control over the price of 1) securities selection volatility, 2) style risk, and 3) TAA risk carried by the portfolio by determining weights for every asset class.

The manager's SAA activities create a security selection threat. The only option for these managers to eliminate security selection risk is to own a market index actively. This assures that the owner's asset class returns are precisely similar to the asset class baseline.

Monitor Performance:

The CAPM model may be used to assess portfolio performance. A regression of surplus portfolio return on excessive market return yields the CAPM performance metrics. This results in the systematic risk (β), the anticipated value-added return (α), and the risk level. The Treynor and Sharpe ratios are calculated here.

The Treynor ratio, Tp = (Rp-Rf)/, calculates the amount of extra return achieved by putting on an extra item of systematic risk.

The Sharpe ratio can be calculated as Sp = (Rp-Rf)/ σ, wherein σ indicates Stdev(Rp-Rf) monitors the extra return per unit of overall risk.

When we compare the Treynor and Sharpe ratios, we can see if a supervisor assumes a lot of unplanned or quirky risk. Diversification of assets inside the portfolio can help to mitigate individual risks.

Apart from these, a portfolio manager must:

  • Remain updated on the state of the financial markets.
  • Keep up with current happenings.
  • Consider the general economic forecast.
  • Investigate market trends and changes.
  • Determine the client's investment objectives and look for suitable investment options.
  • Work directly with financial experts to choose investment securities.
  • Oversee an analytic team.


There is no doubt that efficient portfolio management enables investors to curate the perfect investment idea that matches their age, salary, and risk appetite. With top-level investment portfolio management, investors can minimize their risks drastically and get personalized solutions for their investment-related queries. It is, therefore, among the hereditary parts of adopting any investment strategy.


Is a portfolio manager a trader?

No, the portfolio manager isn't a trader. Traders operate for themselves or a corporation to execute and analyze transactions of individual stocks. On the other hand, portfolio managers design techniques that allow them to sustain or grow earnings over time. These managers seek to ensure that the portfolio's worth is maintained and, if feasible, rises over time.

How much does a portfolio manager Charge?

All portfolio managers demand a fixed amount as a proportion of the portfolio's value (usually at least 1%). Some additionally take an incentive fee based on the rate of return a client receives. For example, the incentive charge maybe 20% of the investor's earnings, which is greater than an annual return of 8%.

Is a portfolio manager an investment banker?

No, portfolio managers are not considered investment bankers. An investment banker is typically employed by a financial company or bank and is mainly responsible for acquiring funds or lending to fund expansion.

A portfolio manager oversees a collection of investments such as stocks, treasuries, real estate, and so on for the benefit of consumers, or a more extensive set of mutual funds, ETFs, or an investment company such as Vanguard.

Is a portfolio manager an investment adviser?

No, portfolio managers are not investment advisers. Investment advisers are specialists that may assist you with investment management, retirement planning, real estate, accounting, and debt management, among other things. Portfolio managers are usually mainly concerned with assisting you in investing and handling your financial portfolio.

Can a financial advisor become a portfolio manager?

Yes, financial advisors can become portfolio managers. Advisors associated with any investment management organization provide portfolio management services and a wide range of several other professional services. Investment advisors assess your financial situation and provide a strategy to assist you in reaching your goals.

Nakla Team
Nakla Team

Nakla team aims to provide their customers with all the latest happenings in the financial market and keep them updated with trending terminologies. We have the resources that help you upgrade your investment game and make your investment journey seamless.