Portfolio investment

Portfolio investment is investment made by investors who are not particularly interested in involvement in the management of a company.

The term is often used in the context of foreign investment in a country, which can often be fairly neatly divided between:

  • portfolio investors (who buy debt and listed shares)
  • direct investors (who set up operations in a country).

Of course the division is not always that neat: a foreign investor who launches a takeover of a domestic company may be buying listed securities to do so, but is not a portfolio investor.

Fund managers do sometimes intervene in the management of a company, but any active involvement is short lived: their most common intervention is to change the composition of the board of directors, with the changed board then left to manage the company. Fund managers can therefore almost always be assumed to be portfolio investors. Private equity funds are an important exception. They usually buy with shares the intention of taking control of a company.

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