A portfolio manager is a professional responsible for making investment decisions and carrying out investment activities on behalf of vested individuals or institutions. The investors invest their money into the portfolio manager's investment policy for future fund growth such as a retirement fund, endowment fund, education fund, or for other purposes. Portfolio managers work with a team of analysts and researchers, and are responsible for establishing an investment strategy, selecting appropriate investments, and allocating each investment properly towards an investment fund or asset management vehicle.
The goal of an investment manager is to earn a greater return than the given level of risk. This return can be monitored by investors through weekly, monthly, quarterly, or yearly performance reports shared by the portfolio manager. The manager may set up a performance benchmark or track their investment strategy alongside an index. The investment policy shared by the manager outlines the details such as minimum investment requirements, liquidity provisions, investment strategy, and markets the manager will be actively investing in. Institutional investors include Fund of Hedge Funds, Insurance companies, Endowment funds, and Sovereign Wealth funds. Individual investors include Ultra-High Net Worth Individuals or High Net Worth Individuals.
Portfolio managers and investment analysts
Portfolio managers are presented with investment ideas by internal buy-side analysts and sell-side analysts from investment banks. It is their job to sift through the relevant information and use their judgment to buy and sell securities. Throughout the day they read reports, talk to company managers, and monitor industry and economic trends, looking for the right company and time to invest the portfolio'scapital. A team of analysts and researchers are ultimately responsible for establishing an investment strategy, selecting appropriate investments, and allocating each investment properly for a fund or asset-management vehicle. Portfolio managers make decisions about investment mix and policy, matching investments to objectives, asset allocation for individuals and institutions, and balancing risk against performance. Portfolio management is about strengths, weaknesses, opportunities, and threats in the choice of debt vs. equity, domestic vs. international, growth vs. safety, and other trade-offs encountered in the attempt to maximize return at a given appetite for risk. In the case of mutual and exchange-traded funds, there are two forms of portfolio management: passive and active. Passive management simply tracks a market index, commonly referred to as indexing or index investing. Active management involves a single manager, co-managers, or a team of managers who attempt to beat the market return by actively managing a fund's portfolio through investment decisions based on research and decisions on individual holdings. Closed-end funds are generally actively managed. A portfolio manager risks losing his past compensation if he engages in insider trading; in fact, lawyers at the law firm Davis & Gilbert wrote in an article in a 2014 article in Financial Fraud Law Report that:
"Based upon courts current application of New York's faithless servant doctrine, it is virtually certain that if... hedge fund... managers engage in wrongdoing... those.. managers will be forced to disgorge all compensation received during the period the wrongdoing occurred".
In Morgan Stanley v. Skowron, 989 F. Supp. 2d 356, applying New York's faithless servant doctrine, the court held that a hedge fund's portfolio manager engaging in insider trading in violation of his company's code of conduct, which also required him to report his misconduct, must repay his employer the full $31 million his employer paid him as compensation during his period of faithlessness. The court called the insider trading the "ultimate abuse of a portfolio manager's position." The judge also wrote: ""In addition to exposing Morgan Stanley to government investigations and direct financial losses, Skowron's behavior damaged the firm's reputation, a valuable corporate asset."
