Risk management based primarily on the investment limit system is one of the key issues determining active portfolio management. However, risk should be treated as a scarce resource used efficiently in order to maximize portfolio performance. That's why, instead of avoiding risk, portfolio managers should carefully define its acceptable level and sources that are at the same time potential sources of return. They can benefit from the development of risk measurement methods as well as the integrated risk management approach. Investment limits, imposed in order to limit potential losses stemming from wrong market forecasts or incorrect risk assessment, should not prevent a portfolio manager from reaching a higher efficient frontier. They should not force risk concentration either. The limit system ought to reflect the risk target defined for the whole portfolio under investment strategy assumptions.

Keywords: risk management, active portfolio management, risk budgeting.

  Ewa Szafarczyk, Active Portfolio Management Under Investment Constraints - plik pdf; (287 KB)