Rebalancing represents supremely rational behavior. Maintaining portfolio targets in the face of market moves dictates sale of strong relative performers and purchase of poor relative performers. Stated differently, disciplined rebalancers sell what’s hot and buy what’s not. Under normal circumstances, rebalancing asks for modest degrees of fortitude. When markets make extreme moves, rebalancing requires substantial amounts of courage. (查看原文)
Continuous rebalancing requires daily valuation of portfolio assets. If asset class values deviate by as much as one or two tenths of a percent from target values, managers trade securities to achieve targeted levels. (查看原文)
At any point in time, illiquid holdings of private equity and real assets are unlikely to match targeted levels. An amount of assets equivalent to the aggregate illiquid portfolio shortfall (or surplus) must be invested in (or withdrawn from) liquid securities portfolios. Appropriate candidates for investing private asset under-allocations include shorter duration, low risk assets, since funds may be required on short notice to make investments to bring private portfolios closer to target levels. Cash, bonds, and absolute return investments provide reasonable temporary alternatives for private asset underallocations. (查看原文)
Serving institutional goals requires disciplined implementation of asset allocation policies, centered on regular rebalancing to ensure that portfolio characteristics match targeted levels. Many activities pursued by institutional fund managers create frictions that cause portfolio results to differ from expectations. Illiquid investments often provide attractive active management opportunities, while posing significant challenges to the rebalancing process. Investors employing active management strategies expose funds to the impact of performance differentials relative to benchmark results. Use of leverage magnifies investment results, potentially altering portfolio characteristics in a manner unanticipated by asset allocation analyses. Sensible investors rebalance regularly, carefully co... (查看原文)
