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How to Choose the Right Portfolio Monitoring Tool for Your Investment Strategy?

Portfolio Monitoring
Portfolio Monitoring

Investment firms must have a well-defined portfolio management strategy. Without monitoring the performance of investments, you cannot expect a firm to mitigate risks. The process of tracking the health of investments and mitigating risks is called portfolio management. Private equity, venture capital, and other investment firms take portfolio management seriously. However, a portfolio management strategy cannot be implemented without the right tool. Outdated portfolio monitoring systems cannot handle the increasing complexity of portfolio companies. Due to the same, investment firms search for new-age portfolio management solutions that can offer granular-level data insights.

Read on to understand how to choose the right portfolio management tool for your investment strategy.

Understand your investment strategy

Before looking for a software solution, you must understand the investment strategy. An organization with an unclear investment strategy might not take the right decisions. The type of portfolio management solution will depend on the investment strategy. For example, someone trading in sustainable stocks might need an ESG-centric portfolio management solution. On the other hand, short-term trading firms dealing in futures contracts might require a predictive portfolio management solution. Take some time to understand the investment strategy of your organization before deploying a portfolio management solution. If the firm does not have an investment strategy, it is time to draft one.

Identify the KPIs to monitor

A software system can monitor the performance of your portfolio at all times. A portfolio management solution must monitor the essential KPIs (Key Performance Indicators) to suit the investment strategy. KPIs can help with the analyses to understand the performance of different investments. The portfolio management solution will depend on the type of KPIs an organization wants to monitor. The KPIs monitored by an investment firm will depend on its investment strategy. Let us understand the relationship between KPIs and investment strategy with an example.

Assume that a private equity firm only trades in blue-chip stocks. Blue-chip stocks are issued publicly by large corporations having a large market share. In such a case, the private equity firm might monitor KPIs like ROI, market capitalization, market indices, and stock performance. The private equity firm will look for a Portfolio Monitoring Solution that can track the related KPIs. Before choosing a solution for portfolio management, take some time to decide on the right KPIs for your organization. Once the KPIs are decided, choose a portfolio management solution accordingly.

Consider the UI of the portfolio management tool

A portfolio management tool will be used by different individuals within the firm. Managers might use the portfolio management tool to check the employees assigned to different projects. Business owners might check the tool to know the overall health of their portfolio. Similarly, analysts might use the tool to track individual KPIs and the health of portfolio companies. Researchers within an investment firm might require the tool for market research and forecasting. People with different levels of expertise will use the software solution, from entry-level employees to senior managers. The UI (User Interface) of the portfolio monitoring tool should be simple/intuitive. All information regarding different investments must be displayed in a single dashboard. Real-time alerts must be generated if any project deviates from the investment strategy.

Must Read: Knowledge Management RFP Best Practices to Ensure Success

Check for portfolio management support

There might be times when some employees face issues with the portfolio management tool. There must be an option for customer support with a portfolio management system. Many enterprises purchase software solutions from unreliable vendors. They do so to minimize the funds invested in purchasing software solutions. However, they do not realize the vendor will not provide customer support when they need it the most. Employees might have to figure out a technical problem themselves, as there is no customer support. Before purchasing a portfolio management solution, check for the reputation of the vendor and customer support facilities. You cannot expect a technical issue to disrupt the service availability of the entire investment firm.

Check for security measures

A portfolio monitoring solution contains information regarding all the portfolio companies. The information is sensitive and must only be viewed by the concerned individuals. For example, a private equity firm cannot allow a hacker to see what companies it has invested in. For the same rationale, the security of a portfolio management solution is of utmost importance. Hackers often try to steal market reports, portfolio data, and other sensitive data from private equity and venture capital firms. With a secure portfolio management solution, firms can gain control over their data.

Portfolio management is a necessity for investment firms in this competitive era. A portfolio management solution must align with the investment strategy of the firm. Also, choose a vendor that offers customer support on the portfolio management system. Cross-check your investment strategy and install a portfolio management system now!

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