The Ultimate Guide to Mastering Private Equity Portfolio Management
Tuesday, Aug 8, 2023
Private equity portfolio management seem to be very intimidating words put together, things that can only be done by wall street investment bankers. But, if one has the right strategies and guidance, it's not quite difficult to understand. So, as a portfolio management company ourselves, today we are discussing private equity portfolio management, from its very basics.
What is Equity Portfolio Management?
Equity Portfolio Management is simply the curation and management of a combination of assets like cash, stocks, gold, bonds, and more. A portfolio can be managed by an individual themself or a qualified portfolio manager for the clients. High value portfolios are mostly managed by professional advisors. Companies themselves have their own portfolios which include all their assets. Companies often either hire private equity portfolio managers or have an in-house team to manage their portfolios.
What is the aim of Private Equity Portfolio Management?
The aim of portfolio management, just like investing is to meet one’s long term financial goals while staying in risk bearing capacity. Investors hire equity portfolio managers because the managers are qualified and experienced experts who can efficiently guide the investors. Small investors on the other opt for general advisory, like from their brokers. Be it a small investor, high net worth individual, a company or any other entity; the goal of equity private portfolio management stays the same.
Who are portfolio managers and what do they do?
Portfolio managers are qualified professionals who understand asset management and stock markets. They usually have a team of researchers and analysts who constantly monitor markets, and on the basis of this, they advise their clients. Every country has its own rules and regulations around portfolio management advisory. In India, the minimum investment amount for opting PMS is INR 50 lakhs.
Building a holistic portfolio
In order to get private equity portfolio management right, the first step is to start by building a robust and all-rounded portfolio.
Here are some things that should be kept in mind:
Definite and clear financial goals: Most investors lose money when they invest without a plan. So, you need to set clear objectives. Your financial goals can be short or long term, like buying property, retirement planning, higher education, etc. Setting financial goals will help you plan and manage your investments.
Risk Management: Every investor’s risk tolerance is different. The risk tolerance also differs depending on the financial goals and duration of investments. Risk is inevitable but you need to understand your risk bearing capacity in order to not incur losses. People at an earlier stage of their career usually have more risk tolerance than those nearing retirement. Risk management helps minimize risks and invest efficiently.
Diversify the portfolio: This is a strategy for minimizing risk and wealth creation. A good portfolio should be all-rounded. Invest across different sectors and asset classes, different risk and return instruments, etc. This helps you prepare for a volatile market then some sectors and security might be going down but others not so much.
Ensure Liquidity: A well-rounded portfolio should not have all of the funds blocked in non-liquid securities. There should be a liquid component, kept in the private equity portfolio as cash or as short-term liquid funds. Liquidity helps prepare for emergencies and sudden fund requirements.
Rebalancing: We can’t just invest at one place and forget about the investments for decades. All markets are volatile and this is why you need to monitor your portfolio regularly. In fact, rebalance is a very important part of private equity portfolio management. A portfolio should be altered and updated regularly to make adjustments as per the market conditions and make sure it’s in line with financial goals.
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