Maximizing Your Portfolio Performance: Best Practices for Portfolio Monitoring and Analysis
Risky investments can be highly rewarding but nevertheless, venture capital and private equity companies must be careful when choosing their investments. Once they have built a diverse portfolio, they must track the performance of investments. Portfolio monitoring is crucial for firms to track the performance of different projects. Due to the same, many firms have started using high-end portfolio analytics and reporting solutions. Given the recent disruptions in the market, like the COVID-19 pandemic, high-end technological solutions are a must to enhance one’s portfolio performance.
Read on to understand the best practices to monitor portfolios and analysis for maximizing your portfolio performance.
What is portfolio monitoring?
An investor will continuously track the performance of investments to make informed decisions. On a grassroot level, investors study market reports, forecasting reports, and financial documents. Usually, they refer to different reports and documents manually. Portfolio monitoring is a more analytical and digital form of research. Investors count on software solutions to analyze the portfolio at a granular level.
Portfolio monitoring tracks the performance of assets, stocks, portfolio companies, and initiatives. Based on the insights achieved after portfolio analytics, informed decisions are made. Private equity or venture capital companies can align their portfolios with investment strategies. Optimizing the investment strategy becomes easy when recent data is available as it makes it easy for the investors to check the performance of portfolio companies. If any portfolio is not performing up to the mark, investors will have the time to adjust their portfolios by making changes in their plans.
Best practices for maximizing your portfolio performance
Every investment firm has its portfolio management strategy. However, not every investment firm succeeds in maximizing returns with portfolio management. It might happen because they couldn’t access portfolio analytics and reporting solutions. Sometimes, investment firms fail to track the right KPIs (Key Performance Indicators). Firms must implement the right practices for portfolio management. Here are the best practices for maximizing portfolio performance to earn increased returns.
Set your investment goals
To maximize portfolio performance, a firm must have clear investment objectives. Is your company determined to invest in futures contracts for short-term profits? Some investment firms might look to hold projects for several years. Whatever the investment strategy, it is essential that everyone within the organization knows it. When investments are aligned with the organization’s strategy, goals are achieved.
Frequent portfolio checks
Firms must make a habit of conducting portfolio reviews at regular intervals. It is essential to check whether the portfolio is still aligned with the investment objective. By conducting frequent portfolio reviews, firms can identify underperforming initiatives. As a result, they can shift their portfolio proactively to align with the investment strategy. Private equity and venture capital firms cannot conduct portfolio reviews manually. Given the size of portfolios and numerous analytical factors, firms require a portfolio monitoring solution to conduct frequent reviews.
Decide your KPIs
To maximize portfolio performance, a company must know its investments. Checking whether a portfolio company’s debt has increased is not enough. One must identify granular-level insights regarding portfolio companies. It might include return on investment, ESG score, debt-to-income ratio, gross production, etc. Identifying the right performance indicators is a must for maximizing portfolio performance. The portfolio analytics and reporting system can be tuned to track specific KPIs.
Keep an eye on market trends
Portfolio performance depends a lot on market trends. For example, if there is a major disruption in the market, investment returns might go downhill. In such a case, investors can liquidate assets or back out of certain companies to avoid a loss. Conversely, portfolio performance is maximized when investments are made according to market trends.
Use the right portfolio monitoring system
Portfolio analytics and reporting must be automated for better results. An automated solution will track KPIs and identify risks in real-time. It will also reduce the manual burden on analysts trying to maximize portfolio performance.
Investment firms must monitor market changes to shift their portfolios accordingly. AI-led portfolio monitoring solutions can help them track essential KPIs and identify changes on the spot. A firm also needs to define an effective investment strategy. Finally, it will work as a benchmark for aligning portfolio companies.