Concentration limit

A concentration limit stops a portfolio depending too heavily on one source of risk. The grouping can be an instrument, issuer, issuer group, counterparty, sector, country, currency or manager. The limit is a maximum share of a stated denominator, usually net asset value or total portfolio value.

Three choices decide what the limit means in practice: the denominator, whether related entities are grouped, and whether fund holdings are looked through. A policy that leaves them open is ambiguous. Each answer should be recorded with the rule.

Acclimetry has separate templates for issuer, counterparty, attribute and related-portfolio concentration. A sector cap needs a band per named sector, and an unlisted sector is unconstrained. A rule of the form “any sector at most 25%” cannot be written as one band (sector, country and region bands).