Portfolio management

Portfolio management is an activity that involves making investment decisions and applying them to a set of assets selected in a discretionary and personalized manner.

Although portfolio management is usually a professional activity, the concept can also be used to refer to a personal situation. In fact, there are private investors who manage their own portfolio of securities. However, when we talk about portfolio management, the most common thing is that we are referring to the professional activity carried out by authorized entities.

It should be noted that advising is not the same as managing. The person or entity that manages a portfolio has the power to buy or sell financial assets directly to the market. On the contrary, the advisor may recommend, but never execute directly.

The legal form that unites the individual with the professional is the portfolio management contract . This contract must fulfill a series of characteristics to be legal.

Who performs portfolio management?

Apart from the fact that the concept can be used to refer to private investors who do it on their own, professionally speaking the companies that can manage portfolios are limited. This limitation will depend on the country and the competent monetary authority.

For example in Spain, those that can perform portfolio management as defined here are:

  • Securities companies (SV):They can manage their own and other people’s portfolios.
  • Portfolio management companies (QMS):They can manage other people’s portfolios but not their own. That is, they can have clients that delegate the management of their portfolio to them, but not create portfolios with their own assets.
  • Management companies of collective investment institutions (SGIIC):They are companies with the power to manage collective investment institutions. For example, investment funds.

As customers we must pay attention to the services offered to choose a manager that fits our profile. Although the fund manager will also manage our money as a portfolio management company (SGC), it is not the same deal. In theory, the QMS carry out a personalized portfolio management, individually and exclusively with our money. For example, if we have 20,000 euros, a SGC will manage those 20,000 euros individually. However, if we introduce those same 20,000 euros to an investment fund, these will be added to the fund’s assets.

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