Portfolio management

Author: The Carta Team
Read time: 5 minutes
Published date: July 15, 2025

In this article, we’ll guide you through the basics of strategic portfolio management, including how to develop and execute an effective portfolio management strategy.

What is portfolio management?

Portfolio management is the process of selecting, monitoring, and improving the performance of a collection of investments. It helps investors meet financial goals while balancing risk and returns.

Portfolio management involves ongoing oversight and strategic decision-making around several key components, including:

• Diversification: Spreading capital across different asset classes, industries, company stages, and geographies to minimize risk.

• Asset allocation: Strategically assigning capital to various asset classes—like equities, real estate, private equity (PE), and venture capital (VC)—based on the fund’s risk tolerance and goals.

• Performance monitoring: Evaluating portfolio performance through financial and operational KPIs—mainly by tracking metrics like ROI, IRR, MOIC, and TVPI.

• Forecasting: Projecting growth, funding needs, and market conditions to inform future investment decisions and follow-on funding rounds. Forecasting is also used to predict the potential impact of a failing or thriving investment on a fund.

• Risk management: Identifying, analyzing, and mitigating exposure to potential capital losses through scenario planning, hedging, or stress testing.

• Rebalancing: Periodically adjusting asset allocations to maintain the portfolio's intended structure, typically in response to market changes or performance drift.

Managing a portfolio in private equity and venture capital

Portfolio management can be quite hands-on, as private funds work to improve, scale, and eventually exit their portfolio companies. Due to the long-term and often illiquid nature of VC and PE investments, fund managers must carefully plan capital commitments and construct well-balanced portfolios that can withstand high failure rates—particularly in early-stage venture capital.

The roles and responsibilities of a fund manager vary at each stage of the portfolio management process.

1. Portfolio construction

When building a portfolio, you’ll need to understand the potential upside and risks of each investment opportunity. Analyzing market trends and historical performance should give you an indication of potential outcomes.

2. Performance optimization

There are several ways to optimize the performance of your portfolio, increasing the chances of a successful company exit and maximizing the potential multiple on invested capital (MOIC) for limited partners (LPs).

3. Portfolio monitoring and reporting

Over time, you’ll need to track and report on the performance of your portfolio companies to ensure alignment with fund objectives and investors’ expectations. Developing a scalable—and ideally automated—strategy for monitoring and reporting will save you time as your portfolio grows.

Developing a portfolio management strategy

For first-time fund managers who may not have a proven track record, developing an effective portfolio management strategy can help to foster trust with LPs and portfolio companies.

Investment criteria examples

Investment criteria are guidelines used to evaluate potential investments or target companies in line with a fund’s goals. Your criteria may include industry, sector, geographic location, and investment size.

Portfolio support services

Once you’ve developed a clear portfolio management strategy and investment criteria, the next step is to outline the services you plan to offer your portfolio companies.

Building a platform team

After deciding which services to offer your portfolio companies, you’ll need to start assembling a team of specialists to take on platform duties—such as implementing processes to drive your firm’s portfolio management strategy and scale your portfolio services.