Portfolio Management Strategies for Your Corporation
The buying, selling, and trading of investments within a portfolio — optimizing the returns of the portfolio by managing which investments the portfolio holds — is considered portfolio management. But the portfolio itself remains constant despite the changes of its exact contents. The portfolio itself only actually changes when the underlying investment strategy changes.
That’s why corporations often have multiple investment portfolios. Each portfolio is managed utilizing a unique strategy, based on the goals of the investors. For example, a corporation may have a stock investment portfolio that it uses to generate returns on petty cash, while also maintaining a capital investment portfolio that includes land, corporate acquisitions and subsidiaries, and other types of capital.
Each of these portfolios has very different contents and very different purposes for existing, and the strategies involved in managing the contents are very different as well.
The following list looks briefly at three different portfolio management strategies:
Slush fund/petty cash portfolio: A corporation that maintains a cash account for irregular small payments that come up from time to time can still generate a return on this cash by maintaining a portfolio of short-term, highly liquid investments, such as T-bills and dividend-generating funds.
Hedge portfolio: Not to be confused with a hedge fund, a hedge portfolio is intended to hedge (take actions that limit risk or uncertainty) other forms of risk by managing derivatives and diversifying investments. A portfolio like this changes based on the types or amount of risk being accepted by the corporation.
Debt portfolio: This type of investment portfolio invests exclusively in bonds of different types and with different maturity dates, usually with the intention of staggering maturity dates and coupon maturities in order to maintain regular cash flows.