The main distinguishing factor between portfolio management and personal investing is that the full responsibility for research, analysis, and trade execution lies with a professional team. This approach allows individuals to invest with greater peace of mind and confidence, without needing complete expertise in market analysis. As a result, portfolio management not only saves time but also enhances capital efficiency.
Why Is Portfolio Management Important?
As financial markets become more complex and the variety of instruments increases (stocks, bonds, ETFs, cryptocurrencies, etc.), achieving optimal returns without professional analysis and thorough evaluation has become more difficult. In such conditions, portfolio management emerges as a professional and secure solution that can protect investors from decision making errors or emotional reactions.
Professional Management and Specialized Decision Making
Licensed portfolio managers, based on their training, experience, and advanced analytical tools, identify economic conditions, market trends, and optimal entry/exit points. Unlike personal decision making, which may be influenced by emotional markets, these decisions are made based on data and logical reasoning.
Risk and Return Optimization
Every investor has a specific level of risk tolerance. A professional portfolio manager, considering your age, financial goals, and risk bearing capacity, creates a balanced mix of high risk assets (stocks, cryptocurrencies) and low risk assets (bonds, bank deposits) to achieve desirable returns within an acceptable level of risk.
Strategic Asset Diversification
Allocating capital across various asset classes helps reduce systematic risk. By analyzing the correlation between assets, the portfolio manager constructs a portfolio where the fluctuation of one asset has a limited impact on the overall portfolio. This diversification is applied not only across asset classes but also across industries and financial instruments.
Types of Portfolio Management in Iran
In Iran, portfolio management is categorized based on two main criteria: the method of management (active or passive) and the level of operational authority (discretionary or non discretionary). Additionally, the key distinction between discretionary portfolio management and investment funds is of significance.
Active and Passive Portfolio Management
Active management refers to prompt reactions to market events and aims to achieve returns above the overall index. This style suits those seeking excess returns and willing to accept the risks associated with frequent trading.
Passive or static management reduces risk and cost by following a market index and avoiding frequent trading. This method is appropriate for individuals with a long term outlook and low risk tolerance.
Discretionary and Non Discretionary Portfolio Management
Discretionary management means granting full authority over buying and selling decisions to the portfolio manager. The investor supervises the selection of core assets, but execution decisions are entrusted to the manager.
In non discretionary management, the portfolio manager provides recommendations, but trades are executed only with the investor’s approval. This style is suitable for those who wish to maintain greater control over their transactions.
Difference Between Discretionary Portfolio Management and Investment Funds
Discretionary portfolio management involves constructing a customized portfolio for each individual based on their investment goals and horizon, making it inherently flexible and personalized.
Investment funds, on the other hand, allocate clients’ resources across similar assets. This approach is easier and requires a lower minimum investment, but lacks customization. In contrast, discretionary portfolio management is more suitable for individuals with higher capital and allows for tailored asset selection.
Who is a Portfolio Manager?
A portfolio manager is an individual or institution that manages an investor's assets by leveraging financial expertise and professional analysis. The portfolio manager's responsibilities include selecting an appropriate mix of assets, continuously monitoring the market, making timely decisions, and ensuring transparency for the investor. In essence, the portfolio manager acts as a financial leader, enabling the investor to benefit from market opportunities without the need for daily analysis.
Given the complexity of today’s markets, understanding the exact roles and operations of a portfolio manager is a key factor in successful investing. Below, we examine the three primary duties of a portfolio manager:
Market Analysis and Financial Decision Making
Every investment decision must be based on policies, market data analysis, and future trend forecasting. The portfolio manager identifies entry and exit points for assets by reviewing indicators, economic reports, and industry developments. The analysis may involve reviewing corporate financial statements (fundamental analysis), studying charts and price trends (technical analysis), or assessing macroeconomic conditions. The outcome of these analyses is a set of intelligent, non personalized decisions regarding the construction or adjustment of the portfolio.
Portfolio Construction and Periodic Rebalancing
After analysis, the portfolio manager constructs a sample portfolio tailored to your goals, time horizon, and risk tolerance. This portfolio may include stocks, bonds, deposits, gold, or cryptocurrencies. The key to a portfolio manager’s success lies in continuous balance meaning regular review and rebalancing of the asset mix. This process ensures the portfolio stays aligned with its core objectives and maintains a proper ratio between high risk and low risk assets.
Investor Communication and Transparent Reporting
One of the most important aspects of a portfolio manager’s professionalism is transparency and ongoing communication with the investor. Periodic reports (monthly or quarterly) are provided, covering portfolio performance, changes made, existing risks, and market forecasts. Addressing questions, explaining the rationale behind decisions, and clarifying how the capital is being managed all contribute to building trust and enhancing client satisfaction.
Advantages and Disadvantages of Portfolio Management
To make an informed decision, one must have a complete and realistic view of the advantages and limitations of portfolio management.
Portfolio management, through professional expertise, systematic diversification, and continuous oversight, offers better growth opportunities compared to self directed investing. It saves a significant amount of time, reduces emotional errors, and replaces them with analytical decision making.
On the other hand, portfolio management comes with costs; management and transaction fees may impact returns. Moreover, the quality of the portfolio manager’s support is crucial if their performance does not meet your expectations or if they adopt an incorrect approach, it can pose a significant risk to the investor.
Table of Advantages and Disadvantages
| Advantages | Disadvantages |
| Professional analysis and data driven decision making | Management and transaction fees |
| Diversification and continuous asset rebalancing | Potential mismatch between performance and investor expectations |
| Time saving and reduction of emotional investment errors | Requires high level of trust and full transparency |
| Risk management and execution of financial strategies | Limited investor control over decisions |
How to Choose the Right Portfolio Manager?
Choosing the right portfolio manager can be a turning point in your investment journey. Below, we examine three key criteria:
Official License and Performance Track Record
The first step is to review the portfolio manager’s official license and track record. The manager should operate under the supervision of reputable financial institutions such as the Securities and Exchange Organization of Iran, and their sample portfolios and past performance should be accessible. Evaluating the risk adjusted return rate or comparing performance against market indices provides important insights into the manager’s capabilities.
Investment Style and Strategies
Each portfolio manager has a unique style; some trade more actively, while others maintain a more balanced approach. Investors need to understand whether the manager’s style aligns with their goals, investment horizon, and risk tolerance. Asking these questions clearly during the portfolio manager selection interview greatly aids in making the right decision.
Transparency in Fees and Reporting
Financial transparency and full disclosure of costs (management fees, transaction expenses, and potential extras) are crucial in the selection process. In addition, the type and level of reporting, timing, client access to the portal, and accuracy of reports are key factors in gaining the investor's trust. A portfolio manager who provides clear and periodic reports operates more professionally and is more reliable.
Conditions and Minimum Capital for Portfolio Management
Starting portfolio management is not only about choosing a competent manager; it also requires understanding the legal framework, financial requirements, and contractual prerequisites. Knowing the minimum required capital and legal structure will help you establish a professional and secure relationship with the portfolio manager.
Minimum Required Capital (According to the Instructions of the Securities and Exchange Organization)
According to the regulations of the Securities and Exchange Organization of Iran, each portfolio management contract must be concluded with a minimum capital that is typically set between 5 billion to 10 billion IRR. This amount may vary depending on market conditions and the type of assets involved; however, broadly speaking, investments below this threshold will not be covered by portfolio management services.
Legal Requirements and Official Contract
A portfolio management contract is a legal and binding document. This contract must include information such as: description of the contracting parties, determination of the contract period, obligations of the portfolio manager, percentage of management and performance fees, method of communication, and termination conditions. Moreover, the portfolio manager must be licensed by the Securities and Exchange Organization, and all procedures from account opening to portfolio management must be carried out under the supervision of the regulatory authority.
Steps to Start Portfolio Management
If you intend to have your capital professionally managed, you must follow a clear path from selecting a portfolio manager to signing the contract and monitoring performance. Full awareness of these steps will help you proceed confidently and become a secure investor for the future.
Review and Selection of a Licensed Portfolio Manager
The first step is to compile a list of officially registered and licensed portfolio managers. Review the performance history of each individual or company through reliable sources, and consult with previous investors. Sample portfolios, strategy descriptions, and transparent financial information are advantages that should be carefully considered.
Contract Completion and Document Submission
After selecting a suitable portfolio manager, review and sign the official contract. Required documents such as a birth certificate, national ID card, banking information, and the internal forms of the portfolio manager are necessary to open a dedicated account. Following this, the agreed upon initial capital is allocated to the portfolio, and portfolio management begins.
Performance Monitoring and Receiving Periodic Reports
Once the process begins, you should carefully review periodic reports. These reports must include: asset composition, rate of return, risk level, and any changes made. Your active oversight can lead to contract revisions or adjustments in management practices.
Comparison of Portfolio Management with Other Investment Methods
A portfolio management contract is only one method of capital management. This section compares it with two common approaches investment funds and direct investment to help you make a more informed decision.
Portfolio Management vs. Investment Fund
In an investment fund, investors’ resources are pooled and invested in various assets according to a specific strategy (e.g., equity, fixed income, or mixed). Unlike portfolio management, this method lacks personalization, and the same conditions apply to all fund participants. This approach is simple and suitable for those who seek lower management costs but are also comfortable with having less control.
| Feature | Dedicated Portfolio Management | Investment Fund |
| Initial Capital | High (minimum ~500 million IRR) | Low (a few million IRR) |
| Investor Control | High (dedicated portfolio) | Low (entire fund) |
| Management Fee | Variable and transparent | Fixed and predetermined |
| Diversification | Flexible and based on contract | Limited to the fund’s portfolio |
| Reporting | Personalized and regular | Periodic and general |
Portfolio Management vs. Direct Investment
In direct investment, you personally enter the market and execute the buying and selling of stocks or bonds. This method requires knowledge, time, and constant monitoring. In contrast, portfolio management involves delegating authority to financial experts, allowing for efficient performance and better risk control without direct involvement though it comes with management fees.
| Feature | Portfolio Management | Direct Investment |
| Required Knowledge and Time | Low | High |
| Emotional Decision Risk | Lower | Higher |
| Control Over Transactions | Less (though reporting is provided) | More |
| Decision Responsibility | Portfolio Manager | Investor |
| Management Fee | Yes | Only brokerage transaction fees |
Common Challenges in Portfolio Management
Although portfolio management is a powerful tool for professional capital management, like any other financial method, it is not without challenges. Understanding these obstacles helps investors make more informed decisions and set realistic expectations from their portfolio managers.
Market Volatility and Portfolio Manager Responsibility
Financial markets are inherently volatile; such fluctuations may stem from economic, political, or collective psychological factors. In these situations, even the most professional portfolio managers cannot avoid short term losses. The portfolio manager’s responsibility during such times is to maintain a rational portfolio structure and avoid emotional decisions not necessarily to guarantee positive returns. Investors must understand that no manager can ensure constant profits, but they should be able to prevent major losses and keep the portfolio on the right track.
Mismatch Between Performance and Investor Expectations
Another common challenge is the gap between the actual performance of the portfolio and the investor’s perceived expectations. Many individuals hold unrealistic expectations without a full understanding of the level of risk, market returns, and the portfolio manager’s working style. To reduce this discrepancy, it is essential to clarify investment objectives, establish a written agreement on the strategy, and ensure continuous reporting by the portfolio manager. Additionally, the investor must have a proper understanding of the investment time horizon, as portfolio performance in the short term may involve high volatility, However, better balance is achieved over the long time.
In Which Markets Is Portfolio Management Possible?
Portfolio management is a flexible concept that can be implemented across various financial markets, provided there is a proper legal framework and adequate infrastructure in place. Depending on the type of market and local regulations, the method of executing portfolio management may vary.
Stock Exchange
The most common and official platform for portfolio management in Iran is the stock exchange market. In this market, licensed companies under the supervision of the Securities and Exchange Organization manage dedicated portfolios for individual and institutional clients in accordance with strict regulatory guidelines. Assets such as stocks, debt securities, funds, and bank deposits are included in these portfolios.
Portfolio Management in the Cryptocurrency Market
In the cryptocurrency market, some companies or individuals operating as digital asset managers offer similar portfolio management services. However, such activities are not yet officially authorized or supervised by the Securities and Exchange Organization in Iran. Globally, in countries with transparent infrastructure, specialized firms offer portfolio management services for Bitcoin, Ethereum, and other digital assets. Platforms such as Bitwise and Grayscale are examples of this type of asset management in the crypto space.
Portfolio Management in the Forex Market
In the foreign exchange (Forex) market, a similar concept exists under the name “PAMM/MAM Accounts” or managed accounts. In this model, a professional trader operates using others’ capital, and profits or losses are distributed proportionally among investors. This method is also considered an informal form of portfolio management and currently lacks a legal and transparent framework in Iran.
In summary, portfolio management is formal and regulated in markets with clear oversight and tradable instruments, such as the Iranian stock exchange. However, in higher risk markets like Forex or cryptocurrencies, it is often carried out in the form of non dedicated asset management or advisory services and requires greater caution from the investor.
