Summer Training Report On PORTFOLIO MANAGEMENT OF HIGH NETWORTH INDIVIDUALS IN EARTH INFRASTRUCTURES LIMITED Submitted In Partial Fulfillment of the Requirement Of Masters of Business Administration Corporate Mentor: Submitted By: Name: Mr. Sachin Jain Name: Aayushi Jain Designation: General Manager Enrollment no: 06161203912 Organization: Earth Infrastructures Ltd. Batch: 2012-2014
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Summer Training Report
On
PORTFOLIO MANAGEMENT OF HIGH NETWORTH INDIVIDUALS
IN EARTH INFRASTRUCTURES LIMITED
Submitted In Partial Fulfillment of the Requirement Of
Banarsidas Chandiwala Institute of Professional Studies, Dwarka
(Affiliated to Guru Gobind Singh Indraprastha University)
CERTIFICATE
This is to certify that the project work done on “Portfolio Management of High Net worth Individual
Investors in Earth Infrastructures Limited” submitted to Banarsidas Chandiwala Institute of
Professional Studies by Aayushi Jain in partial fulfillment of the requirement for the award of degree of
Master Of Business Administration, is a bonafide work carried out by her under my supervision and
guidance. The work was carried during 10th June, 2013 to 30th July, 2013 in Earth Infrastructures
Limited.
During the training period her behavior & performance was satisfactory.
Date: July 2013
Seal/Stamp of the Organization
BONAFIDE CERTIFICATE
This is to certify that as per best of my belief the project entitled “Portfolio Management of High Net
worth Individual Investors in Earth Infrastructures Limited” is the bonafide research work carried
out by Aayushi Jain student of MBA, BCIPS, Dwarka, New Delhi during June-July 2013, in partial
fulfillment of the requirements for the Summer Training Project of the Degree of Master of Business
Administration.
She has worked under my guidance.
--------------------
Name: Dr. Aparna Mishra
Project Guide
Date:
Counter signed by
-------------
Name:Dr. Satish Taneja
Director
Date:
DECLARATION
I hereby declare that this Project Report titled “Portfolio Management of High Net worth Individual
Investors in Earth Infrastructures Limited” submitted by me to Banarsidas Chandiwala Institute of
Professional Studies, Dwarka is a bonafide work undertaken during the period from June 10 th, 2013 to
August 30th, 2013 by me and has not been submitted to any other University or Institution for the award
of any degree diploma / certificate or published any time before.
(Signature of the Student) Date: / / 2013
Name: Aayushi Jain
Enrollment No.: 06161203912
ACKNOWLEDGMENT
It is said “no learning is possible without any proper guidance and no research endeavor is a solo
exercise, some contribution is performed by various individual”. By acknowledging the guidance,
support and assistance, I pay my deepest sense of guidance to my mentor.
I extend a sincere acknowledgment to Earth Infrastructures Limited for giving me the opportunity to
work with this esteemed organization. I would like to thank Dr. Satish Taneja (Director, Banarsidas
Chandiwala Institute of Professional Studies) who has been a constant source of inspiration. I am highly
indebted to Dr. Aparna Mishra for her guidance and constant supervision as well as for providing
necessary information and support in successful completion of the project.
I would also like to thank my corporate mentor Mr. Sachin Jain for his kind co-operation and
encouragement which helped me in completion of this project.
It has been a great honor and privilege to have been acquainted with them. Although there may be many
who remain unacknowledged in this humble note of gratitude there are none who remain unappreciated.
Under the guidance: Submitted by:
Dr. Aparna Mishra Aayushi Jain
MBA (Finance)
EXECUTIVE SUMMARY
The Title of Research Project is “ Portfolio Management of High Net worth Individuals at Earth
Infrastructure Ltd. ” conducted at the Corporate Office of Earth Infrastructure Ltd, 1501 - 1503, 15th
Floor, Tower-A, Signature Tower Gurgaon, Haryana.
Portfolio Management is a science for managing the varying combination of Portfolio elements. These
elements are the sub-components, of which the larger portfolio is formed; say, the elements may be
'plans' for a portfolio of plans, or 'strategies' for portfolio of strategies. In general, we may say that the
elements of a portfolio are different forms of assets and in essence, portfolio management is managing
these assets. We shall henceforth refer to portfolio management as the management of these assets.
This project undertaken at Earth Infrastructure Ltd was mainly to understand about what portfolio
management is and why is it important to continuously follow it. Since the scenario keeps on changing
every single day, it becomes important to evaluate it on a regular basis and make the required changes.
The project as the title suggests, subjected to Portfolio Management of High Net worth Individuals. The
methodology used for the Research is based on the collection of primary and secondary data and the
sampling technique used for methodology was random sampling. The samples are collected from the
various investors. The questionnaire designed was based on mainly three particulars which are risk
appetite of the investors, the horizon for which they want to keep their investment and the liquidity they
want from their investment. Pie charts were used for the visual display of the result.
The main findings of the project are:
The investors seek the safe schemes to invest as most of the people are risk averse and prefer not
to experiment with their hard earned money.
The investors prefer investing for a long term rather than short term in expectations of earning
long term returns.
The investors want their money to be more liquid in the view that they can get the amount of
their investment in hand as and when required.
INDEX
S.No. TOPIC Page No.
Chapter 1 Introduction
Chapter 2 Literature Review
Chapter 3 Objectives and Scope of study
Chapter 4 Research Methodology
Chapter 5 Company Profile
Chapter 6 Data Analysis and Interpretations
Chapter 7 Findings, Suggestions & Conclusions
Bibliography
Annexure
CHAPTER I
INTRODUCTION
CHAPTER 1- INTRODUCTION
1.1 Introduction:
Portfolio Management is a science for managing the varying combination of Portfolio elements. These
elements are the sub-components, of which the larger portfolio is formed; say, the elements may be
'plans' for a portfolio of plans, or 'strategies' for portfolio of strategies, or 'securities' for a portfolio of
securities, and so on. In general, we may say that the elements of a portfolio are different forms of assets
and in essence, portfolio management is managing these assets. We shall henceforth refer to portfolio
management as the management of these assets.
1.1.1 Portfolio Management of High Net worth Individuals:
Portfolio planning is a highly personalized exercise, involving a close examination of a person’s needs
and requirements. Often preparation of such investment portfolios differs on a case-to-case basis. The art
of selecting the right investment policy for the individuals in terms of minimum risk and maximum
return is called as portfolio management. Portfolio management refers to managing an individual’s
investments in the form of bonds, shares, cash, mutual funds etc so that he earns the maximum profits
within the stipulated time frame. In a layman’s language, the art of managing an individual’s investment
is called as portfolio management.
1.1.2 Need for Portfolio Management
Portfolio management presents the best investment plan to the individuals as per their income, budget,
age and ability to undertake risks.
Portfolio management minimizes the risks involved in investing and also increases the chance of making
profits.
Portfolio managers understand the client’s financial needs and suggest the best and unique investment
policy for them with minimum risks involved.
Portfolio management enables the portfolio managers to provide customized investment solutions to
clients as per their needs and requirements.
1.1.3 Types of Portfolio Management
Portfolio Management is further of the following types:
Active Portfolio Management: As the name suggests, in an active portfolio management service, the
portfolio managers are actively involved in buying and selling of securities to ensure maximum profits to
individuals.
Passive Portfolio Management: In a passive portfolio management, the portfolio manager deals with a
fixed portfolio designed to match the current market scenario.
Discretionary Portfolio management services: In Discretionary portfolio management services, an
individual authorizes a portfolio manager to take care of his financial needs on his behalf. The individual
issues money to the portfolio manager who in turn takes care of all his investment needs, paper work,
documentation, filing and so on. In discretionary portfolio management, the portfolio manager has full
rights to take decisions on his client’s behalf.
Non-Discretionary Portfolio management services: In non discretionary portfolio management
services, the portfolio manager can merely advise the client what is good and bad for him but the
client reserves full right to take his own decisions.
Personal financial planning is a continuous process of assessing an individual profile and planning his
finances so that he can attain his financial objective in and effective manner. This exercise involves
deciding on the individual investment portfolio. In the other words, deciding upon the various
investment avenues, the quantum that needs to be invested and the investment horizon for each of the
investments are essential components of the personal financial planning process. Before suggesting any
financial plan for the investor it is very important to consider certain basic factors. These factors are
follows:
The income level of the investor: This is one of the most important factors, which has a
significant bearing on the investment portfolio of the investor. His investment plans should be in
line with his income level and in proportion to the amount he is prepared to invest.
Risk appetite: This differs from person to person and is a highly subjective phenomenon. For
example in most of the cases a 65-year-old man who has retired from work will not have a very
aggressive outlook toward s investments. Hence, recommending equity and equity related
investments might not be appropriate. The investment plan that is drawn should be in sync with
the person’s risk appetite.
Investment horizon: some investors tend to remain invested for long period of time. For such
investors liquidity is not the main criteria. Hence, for such persons PPF, ELSS and NSC are the
best bet. Investor, for whom liquidity is of paramount importance, recommending PPF may not
be appropriate.
Nevertheless, one point that needs to be highlighted is that there can be no fixed rule for any personal
financial planning exercise. It differs from person to person.
1.1.4 Risk Profiling
As the name suggests, Risk Profiling is a scientific approach to find out the attitude or the risk taking
capability of an individual towards his/her investments. Risk profiling is an integral part to the
investment process. It underpins decisions about making an investment. It plays an essential part in
ensuring the suitability of investments for an individual. It gives a measure of how risk averse the
individual is as an investor. This would be the corner stone to determine what securities will likely fit
into the individual’s investments or investment goals factors like age, life stage (single, married, etc.),
income, savings, dependents and mindsets on investments and past experiences on your investments are
the factors that would define your attitude towards investing.
Risk Profiling combines two key areas:
1) Estimating an individual’s financial risk-taking capacity
2) Understanding his psychological risk tolerance level.
These two factors determine where and how one should ideally invest. This Risk profiling would give a
Relationship Manager a clear understanding of the client’s risk appetite, so that he can guide him and
provide informed investment decisions.
1.1.5 The Portfolio Management Process
Step One: Determining the Risk Profile
The first step in portfolio construction is determining the client's risk profile. This is a very important
part of the process. All the other aspects of portfolio construction feed off it. It is also important at this
point to explain the risk-return tradeoff. Investors often want complete capital protection in market
downturns and complete participation in market performance during upswings. This is not a realistic
expectation and their misconceptions should be corrected.
There are five Risk Profiles:
Conservative
Cautious
Moderate
Moderately Aggressive
Aggressive
Where clients fall on this scale is one of the main determinants of their portfolio's final characteristics
and performance. Investors have wildly differing attitudes toward risk and risk tolerance.
Step Two: Strategic Asset Allocation
Armed with a risk profile, the next step is strategic asset allocation. Simply put, this is your long term
asset allocation. Research has shown that up to 90% of a portfolio's performance can be explained by
the composition of asset classes. There are five main asset classes to consider:
Equities (Local South African)
Property
Bonds
Foreign (Includes equities and fixed interest)
Money Market (Short term cash instruments)
The amount of exposure a client should have to each asset class depends almost solely on his risk
profile. The table above details the asset allocation of the various risk profiles. In order to populate the
asset bands we suggest using a building block approach.
This involves appointing specialist investment managers to each manage a part of the asset allocation. In
other words, an assertive investor could invest his money as follows.
Equity exposure could be split between two general equity funds.
Select one or two offshore funds to make up the foreign portion of the assets
A Property manager to manage the property portion
A bond manager for the bond portion
A money market fund for the cash portion
This is just one way to populate the asset bands. Instead of using a pure property fund, you could use a
fixed interest varied specialist fund to take care of bonds, cash and property exposure and then only
allocate a small portion to a money market fund.
Another option is to use a core-satellite approach. Select a single core fund that has an asset allocation
mandate to make up the largest part of the portfolio. Then add one or two other funds as satellites in
keeping with the risk profile.
Step Three: Tactical Asset Allocation
Where strategic asset allocation determines the basic construction of the investment over the long term,
tactical asset allocation has a much shorter focus. It involves actively over-or underweighting asset
classes to take advantage of short term market movements. For example an Assertive investor who is
bullish on foreign assets and bearish on property, would allocate assets closer to the top of the band
(35%) in foreign and the bottom of the band in property (0%). If the investor is neutral towards an asset
class he will be somewhere in the middle.
There is a big chance of getting tactical asset allocation wrong, so instead of adding value you reduce it.
That is why we recommend you restrict the changes in asset allocation to within the bounds of the
specified asset bands. If the investor feels neutral towards an asset class or doesn't want to use tactical
asset allocation, staying in the middle of the bands will still enable him to reach his goals.
Step Four: Fund Selection
Fund selection is the next step in the process. How do you choose funds from the hundreds in the
market? When selecting funds from the Shopping List it is important to remember what risk profile the
client has. This will play a large role in determining which funds you select. Choosing three equity
funds for the 20% equity exposure of a Conservative client, or two Money Market funds for an Assertive
investor is unnecessary. Apart from complicating the portfolio it doesn't really add any value.
Step Five: Constructing the Portfolio
Once the client has selected the funds it's time to place them into a portfolio. Remember that the total
risk of the portfolio is less than the average risk of the separate funds. This is due to the benefits of
diversification. By combining asset classes and different management styles you significantly reduce
risk.
Step Six: Rebalancing the portfolio
The portfolio must be rebalanced at least every 6 months. Due to market movements and the inherent
differences in the funds, they will grow at different rates. This could change the weightings in the
portfolio, moving it out of its specified risk profile or asset bands. For this reason we advocate that you
look at the asset and fund allocations on at least a half yearly basis, to keep the portfolios true to their
original risk profile.
Following these 6 steps will ensure that your clients receive a portfolio that matches their risk profile and
will meet the requisite investment goals. This will give you, the financial advisor and the client, peace
of mind.
1.1.6 Real Estate as an Investment Script
Real Estate refers to investment in immovable properties which includes land, buildings, flats etc.
Investing in real estate involves the purchase of real estate and selling it for a profit. Basically
investment in real estate involves a substantial investment and for a long period of time. Majority of
the investors invest in real estate in the form of buying a house. But real estate investment is beyond
this and the objective behind the investment is to make profits.
Before making a real estate investment, the investor should evaluate the risk appetite and
investment amount.
The different types of real estate investments are as follows –
1) Rental – The aim of this form of investment is to rent out property to a tenant and earn a
continuous stream of rent from the tenant. The value of the property also increases over a period of
time. The risk in this form of investment is the owner of the property has to find out a tenant and also
need to pay for the maintenance expenses.
2) Trading – Basically traders in real estate in order to make a quick profit buy properties for a
short tem ( six months) and sell them at a profit. Traders look out for buying undervalued
properties/very hot properties and sell them at a profit.
3) Long Term Investment – There is a certain group of investors who invests in real estate
basically plot of land from a long term perspective. The objective is over a period of time the value
of the property will rise and the owner will make a profit by selling it. The biggest flaw in this
investment is money is blocked for an indefinite period.
1.1.7 Risk Analysis
Although there is a difference in the specific definitions of risk and uncertainty, for our literature the
two terms are used interchangeably. In fact, one way to define risk is the uncertainty of future
outcomes. An alternative definition might be the probability of an adverse outcome. Composite risks
involve the different risk as explained below:-
Systematic Risk - Systematic risk influences a large number of assets. A significant political event,
for example, could affect several of the assets in your portfolio. It is virtually impossible to protect
yourself against this type of risk.
Unsystematic Risk - Unsystematic risk is sometimes referred to as "specific risk". This kind of risk
affects a very small number of assets. An example is news that affects a specific stock such as a
sudden strike by employees. Diversification is the only way to protect you from unsystematic risk.
(We will discuss diversification later in this tutorial).
Interest Rate Risk - Interest rate risk is the risk that an investment's value will change as a result of
a change in interest rates. This risk affects the value of bonds more directly than stocks. Credit Risk
– It is also called default risk. As the first pic of this article shows that people only look at returns &
not risk in it. Let me ask if SBI bank is paying some 9% interest & some NBFC NCD is paying
12.5% – which one you choose. If you think 12.5% NCD will be the right choice – you are ignoring
the credit risk. Credit risk is when company doesn’t have capacity to pay principal or interest
amount. In past there is a long list of companies which defaulted like CRB Capital, Escorts, Morpen
Labs etc. Even Bank FDs have credit risk – there is guarantee only up to Rs 1 lakh. Credit risk is
close to zero in Government Bonds.
Liquidity Risk – If you have some bonds that you would like to sell for immediate requirement but
there is no buyer or fewer buyers than sellers – you may have to sell your bonds at discount.
Volatility Risk – Equity prices keep fluctuating on day to day basis. This can be measured by
standard deviation.
CHAPTER II
REVIEW OF
LITERATURE
CHAPTER 2- REVIEW OF LITERATURE
2.1 Research Paper on Modern Portfolio Theory: Is There Any Opportunity for Real Estate Portfolio?By Hishamuddin Mohd Ali, Ph.D, Department of Property Management, Faculty of Geoinformation Science and Engineering, University Technologies Malaysia, 81310 Skudai, [email protected]
This paper presents the issues of the applicability and implication of employing MPT on real estate
portfolio analysis. The discussion is merely looking into some previous empirical studies with mixture of
findings. The new paradigm of real estate investment has been shifted from ‘tactical and operational’ to
‘strategic and tactical’ style of management. Therefore, MPT could give a sound analytical view of real
estate portfolio analysis which may offer more opportunities for further research particularly in
Malaysia.
Since Markowitz (1959) introduced Modern Portfolio Theory (MPT), many researchers have attempted
to model the benefits of establishing diversification strategies for portfolio investments. MPT is part of
the branch of finance known as Investment Management. Most of the applications of MPT deal with
paper investments such as stocks, bonds, options and futures rather than real investment like corporate
investment projects and real property.
The purpose of this article is to explore the implications and applicability of MPT in real estate
portfolios. The next sections will discuss the environment of real estate investment with a comparison of
real estate and share markets. The article proceeds by discussing the application of portfolio and capital
market theories on real estate. The most important aspects, including issues on the implementation and
application of MPT, will be highlighted, as well as the implications on real estate research.
Portfolio is simply defined as a list of investment. Managing the portfolio is therefore concerned with the
management of a number of asset classes held for investment purposes. Inefficiencies in the real estate
market, reflecting the in ability to sell short, high transaction costs and wide bid-ask spread, as well as
the complexity of individual properties, require active investment management (Scott Jr., 1994). Most of
the companies aim to maximize the value of the company. Therefore, it is important to understand how
decisions related to the real estate asset affect company value.
In the context of the MPT application, as initially specified by Markowitz (1952), the involvement of
real estate as one of the investment media has lead to the construction of the portfolio within the multi-
asset or the real estate asset class.
Conclusion
The conventional arguments regarding portfolio allocation within real estate have created some
inconclusiveness in structuring the real estate portfolio. The emergence of real estate securitization such
as REITs in the last decade at least has changed the attitude of fund managers on real estate as one of the
best investment options. It has been recognized by investors that the myriad market activities generating
the business cycle are interrelated. It is believed that disturbances in market fundamentals in a given
market generate movements of capital into and out of the affected market. If various markets are
integrated, it is expected that a high degree of asset substitution will take place. As real estate is now one
of the asset classes, its needs to be recognized whether the real estate market and stock market are
integrated. The fact is that, their integration is still inconclusive and therefore, identifying the precise
framework of real estate portfolio construction is difficult. Although there were numerous studies on the
application of MPT, studies of the behavioral aspects concerning expectations of the major players, such
as PLRECs and REITs, were left behind. The paradigm shift of real estate investment from ‘tactical and
operational’ to ‘strategic and tactical’ style of management has transformed the perception of real estate
from just ‘bricks and cement’ to more institutional in business environment Therefore, with the
increasing number of REITs in Bursa Malaysia recently, MPT would be able to offer more opportunities
for further research to explore the behavior and performance of real estate market which may lead to
better investment decisions.
2.2 Research Paper on Investigating the roles, responsibilities and practices of portfolio managers in Australia By Aileen Koh Bond University, MIRVAC School of Sustainable Development, Institute of Sustainable Development and [email protected]
Project Portfolio Management (PPM) is increasingly adopted by organizations in Australia. In order to
select, prioritize and monitor simultaneous on-going projects with limited resources, there is a need for
PPM to optimize investment by utilizing a PPM governance structure to deal with constant change and
focus on achievement of organizational strategy. This is particularly relevant in order to build on
national and global recovery.
The aim of the research discuss in this paper is to investigate the roles, responsibilities and practices of
project portfolio managers in services and products organizations in Australia. It also aims to relate the
relationship between project types and environmental complexity of organization with the practices,
roles and responsibilities of Portfolio Manager. Their influences to ensure that the best projects are
selected and investments are optimized are the concern of this paper.
Project Portfolio Management (PPM) is now a widely used approach by organizations in Australia to
achieve business strategies. It brings great opportunities for organizations to embrace changes and lead
their strategies into reality. PPM is used for selection and resourcing of research and development
projects where project management methods are used to do project rights and portfolio management
methods are used to do the right projects.
Conclusion
Portfolio management as a sound methodology to embrace change and achieve high level strategies has
been increasingly adopted by organizations. The focus of the research is to investigate portfolio
manager’s roles, responsibilities and practices in service and product development organizations in
Australia is investigated. Based on the literature and analysis, a research model is presented. This model
reflects the relationship between different project types and portfolio management’s roles and
responsibilities. The methodology proposed for this research involves (1) validating the research model;
(2) using focus groups to identify the constructs, and refine the related hypotheses; (3) conducting two
case studies through interviews with selected service and product development organizations -qualitative
study; (4) developing a web based questionnaire – quantitative study; (4) data collection and analysis –
to build on the results of the first qualitative phase.
2.3 Research Paper on International Real Estate InvestingBy Seth M. Azria, J.D.
The world has become a market accessible to all those willing to get involved. Global trade, spearheaded
by the multilateral efforts of a vast majority of the world’s nations, is now common place and widely
regarded as the engine of global economic prosperity. Advances in technology have increased the ease
and cost of moving people around the globe. Great economic advances are underway in the world’s two
most populous countries, India and China, with other countries likewise engaged in growth. These
factors combined with creative real estate ownership structures like the Real Estate Investment Trust
(REIT), already firmly entrenched in the United States and gaining popularity around the globe, have
made international real estate both an opportunity and a reality for many people. For United States real
estate investors accustomed to high returns on domestic investments, the global real estate market offers
an alternative to the slumping domestic real estate market. Over the long term, the real estate industry
appears bound toward increased global ownership and involvement. This article reviews some basic
concepts of international real estate investing, the REIT structure, and some hot areas for foreign
investment.
Proliferation of Global Real Estate Investment
The United States has been focused inwardly on growing the domestic economy and has had a relatively
minor role in the global real estate movement up until the late twentieth century. While American
construction companies and banks compete around the world for projects, investment bankers and
advisors, and real estate developers have only more recently seriously moved into international real
estate. Some of the factors that probably contributed to the move are worldwide financial deregulation,
worldwide tax reform, declining property values in the United States, increased economic growth
abroad, government emphasis on exports and better transportation and information
technology. Factors that may have prevented a United States move into the global real estate arena were
lack of foreign language skills among real estate professionals, thriving domestic economy, restated
foreign financial markets, lack of professional training in international real estate and real estate
personnel resistance to traveling and living abroad (Hines, 1988).
Conclusion
The world has become a market accessible to all those willing to get involved. Global trade, spearheaded
by the multilateral efforts of a vast majority of the world’s nations, is now common place and widely
regarded as the engine of global economic prosperity. Advances in technology have increased the ease
and cost of moving people around the globe. Great economic advances are underway in the world’s two
most populous countries, India and China, with other countries likewise engaged in growth. These
factors, combined with creative real estate ownership structures like the Real Estate Investment Trust,
already firmly entrenched in the United States and gaining popularity around the globe have made
international real estate both an opportunity and a reality for many people. For United States real estate
investors accustomed to high returns on domestic investments, the global real estate market offers an
alternative to the slumping domestic real estate market. Over the long term, the real estate industry
appears bound toward increased global ownership and involvement.
2.4 Research Paper on Delegated Portfolio Management: A survey of the theoretical literatureBy Livio Stracca
This paper provides a selective review of the theoretical literature on delegated portfolio management as
a principal-agent relationship. The main focus of the paper is to review the analytical issues raised by the
peculiar nature of the delegated portfolio management relationship within the broader class of principal
agent models. In particular, the paper discusses the performance of linear vs. nonlinear compensation
contracts in a single-period setting, the possible effects of limited liability of portfolio managers, the role
of reputational concerns in a multi period framework, and the incentives to noise trading. In addition, the
paper deals with some general equilibrium dimensions and asset pricing implications of delegated
portfolio management. The paper also suggests some directions for future research.
In most industrialized countries, a substantial part of financial wealth is not managed directly by savers,
but through a financial intermediary, which implies the existence of an agency contract between the
investor (the principal) and a portfolio manager (the agent). Therefore, delegated portfolio management
is arguably one of the most important agency relationships intervening in the economy, with a possible
impact on financial market and economic developments at a macro level. Although there are no
harmonized data across countries, the general view
is that the trend towards delegated portfolio management has not been interrupted by the increased direct
accessibility to financial markets witnessed in recent years, for example through the internet. Davis and
Steil (2001) report that the share of household wealth managed by financial institutions has increased
sharply in recent decades, in particular in the Anglo-Saxon countries but also in Europe and Japan. The
growth of institutional assets has been particularly visible in relation to pension funds. These
developments suggest that gaining a deeper understanding of the nature and consequences of delegated
portfolio management contracts is interesting and relevant, for academics and policy-makers alike.
Delegated portfolio management is a complex phenomenon which encompasses different segments. The
mutual fund industry is predominantly characterized by middle aged households investing individually
in sometimes relatively standardized products. By contrast, pension funds are predominantly managed
by corporate treasures, who often delegate the asset management to a third party, thus creating an
additional layer of agency.
ConclusionsIn this paper we have selectively reviewed the theoretical literature dealing with the analytical issues
arising from delegated portfolio management as a principal-agent relationship between an investor (the
principal) and a portfolio manager (the agent). We have argued that, while this peculiar form of agency
relationship shares many features with a traditional principal-agent model, it also presents its own
challenges. The fact that in a delegated portfolio management setting the agent controls effort and can
influence risk makes it more difficult for the principal to write incentive compatible contracts which are
optimal from her standpoint.
In particular, we have shown how the fact that the portfolio manager can control the scale of his
response to the information signals in a linear (and potentially also nonlinear) way makes the quest for
an optimal linear (and perhaps also nonlinear) contract for the principal very difficult. Indeed, this is a
literature where negative results tend to prevail over constructive ones.
We have also seen how reputation concerns in a multi-period setting may affect the incentives faced by
portfolio managers and in some cases make the job of explicit incentives. At the same time, reputation
concerns may also have distortionary effects insofar as they may lead managers to take on more risk or
to discard private information and herd with the market, none of which necessarily goes to the benefit of
investors. Finally, the literature has emphasized that (implicit or explicit) benchmarking might have
significant implications for asset prices and volatilities at a macro level. Needless to say, there are
several directions in which this literature could be fruitfully extended. Delegated portfolio management
often implies more than one layer of agency, especially in the pension fund industry: how is this likely to
affect incentives and outcomes? Another interesting extension appears to be considering less standard
utility functions for principals, say shortfall risk, which may be again particularly relevant in the pension
fund industry. More generally, gaining a better understanding of the general equilibrium implications of
the agency aspects of delegated portfolio management should be a paramount objective in future
research. This is, in particular, a topic which should be interesting and relevant for policymakers, given
the importance of delegated portfolio management relationships in all developed financial markets.
Notably, the possible impact of delegated portfolio management on the emergence of asset price bubbles
and on excessive trading in capital markets is an issue on which the theoretical literature reviewed in this
paper has definitely shed some light and which would deserve further research.
Ideally, general equilibrium models of delegated portfolio management should be able to determine the
optimal compensation structure ina principal-agent setting and its general equilibrium implications
jointly. Although there is no reason to think that developing such models will be an easy task, since the
literature has not been able to determine the optimal structure of the compensation structure in a
delegated portfolio management context even in a partial equilibrium framework, our conclusion is that
this research agenda should have a high priority in financial economics.
CHAPTER III
OBJECTIVES AND
SCOPE OF THE STUDY
CHAPTER 3- OBJECTIVES AND SCOPE OF THE STUDY
3.1 Objectives of the Study:
The topic of the research project is “Portfolio Management of High Net worth Individual Investors in Earth
Infrastructures Limited” as the title suggested through this study we could study the concept of Portfolio
Management.
Keeping in view the above main objective, the study is carried with:
To analyze the client's risk profile.
To evaluate the duration of the investment made by the client’s.
To understand the client’s expectation of the returns from their investments.
To make the clients aware about the possible benefits of investing in the real estate sector.
To understand the client’s behavior and their need with respect to their investment capacity in the
real estate sector.
3.2 Scope of the Study
The study of the Portfolio Management is helpful in the following areas.
In today's complex financial environment, investors have unique needs which are derived from
their risk appetite and financial goals. But regardless of this, every investor seeks to maximize his
returns on investments without capital erosion. Portfolio Management recognize this, and
manage the investments professionally to achieve specific investment objectives, and not to
forget, relieving the investors from the day to day hassles which investment require.
It offers professional management of real estate investment of the investor with an aim to deliver
consistent return with an eye on risk.
In particular, the scope of this report has been focused to handle and discuss 'real estate' as the
typical sub-component of portfolio of assets.
CHAPTER IV
COMPANY PROFILE
CHAPTER 4- COMPANY PROFILE
4.1 Introduction to the Company:
Name of the company - Earth Infrastructures Ltd.
Type: Private Limited Company
Industry: Real Estate Development
Founded: 2010
Corporate Office- A-1, C & D, Sector 16, Near Metro Station, Noida, U.P.
Registered Office- 26, Ist Floor, Pusa Road, Adjoining Karol Bagh Metro Station, New Delhi