Difference Between Investment Management and Risk Management
Investment management
It is the professional asset management of various securities – typically shares and
bonds, but also other assets, such as real estate, commodities and alternative
investments – in order to meet specified investment goals for the benefit of investors.
As above, investors may be institutions, such as insurance companies, pension funds,
corporations, charities, educational establishments, or private investors, either directly
via investment contracts or, more commonly, via collective investment schemes like
mutual funds, exchange-traded funds, or REITs. At the heart of investment management
is asset allocation – diversifying the exposure among these asset classes, and among
individual securities within each asset class – as appropriate to the client's investment
policy, in turn, a function of risk profile, investment goals, and investment horizon (see
Investor profile).
Portfolio optimization is the process of selecting the best portfolio given the client's
objectives and constraints. Fundamental analysis is the approach typically applied in
valuing and evaluating the individual securities.
Overlaid is the portfolio manager's investment style – broadly, active vs passive , value vs
growth, and small cap vs. large cap – and investment strategy. In a well-diversified
portfolio, achieved investment performance will, in general, largely be a function of the
asset mix selected, while the individual securities are less impactful. The specific
approach or philosophy will also be significant, depending on the extent to which it is
complementary with the market cycle. A quantitative fund is managed using
computer-based techniques (increasingly, machine learning) instead of human
judgment. The actual trading also, is typically automated via sophisticated algorithms.
Risk Management
Where as, Risk management, in general, is the study of how to control risks and balance
the possibility of gains; it is the process of measuring risk and then developing and
implementing strategies to manage that risk. Financial risk management is the practice
Investment management
It is the professional asset management of various securities – typically shares and
bonds, but also other assets, such as real estate, commodities and alternative
investments – in order to meet specified investment goals for the benefit of investors.
As above, investors may be institutions, such as insurance companies, pension funds,
corporations, charities, educational establishments, or private investors, either directly
via investment contracts or, more commonly, via collective investment schemes like
mutual funds, exchange-traded funds, or REITs. At the heart of investment management
is asset allocation – diversifying the exposure among these asset classes, and among
individual securities within each asset class – as appropriate to the client's investment
policy, in turn, a function of risk profile, investment goals, and investment horizon (see
Investor profile).
Portfolio optimization is the process of selecting the best portfolio given the client's
objectives and constraints. Fundamental analysis is the approach typically applied in
valuing and evaluating the individual securities.
Overlaid is the portfolio manager's investment style – broadly, active vs passive , value vs
growth, and small cap vs. large cap – and investment strategy. In a well-diversified
portfolio, achieved investment performance will, in general, largely be a function of the
asset mix selected, while the individual securities are less impactful. The specific
approach or philosophy will also be significant, depending on the extent to which it is
complementary with the market cycle. A quantitative fund is managed using
computer-based techniques (increasingly, machine learning) instead of human
judgment. The actual trading also, is typically automated via sophisticated algorithms.
Risk Management
Where as, Risk management, in general, is the study of how to control risks and balance
the possibility of gains; it is the process of measuring risk and then developing and
implementing strategies to manage that risk. Financial risk management is the practice
