Glossary
Denominator effect
The denominator effect is a rise in an asset class’s share of a portfolio caused by a fall in the value of everything else.
Allocation limits are shares of total portfolio value, so the total is the denominator. When listed equities and bonds fall, the total shrinks. Private assets are revalued less often, so their share rises although nothing was bought.
The effect turns private-market ranges into passive breach risks. A 10% target with a 15% ceiling can be crossed after a sharp fall elsewhere. Policies often plan for it in advance: wider ranges for private classes, a cure period, or slower new commitments rather than forced sales.
In Acclimetry, an allocation range is measured on the current total, so the effect shows at the next monitoring run. An optional grace period delays the case’s clocks, while the result is a breach from the first observation. The example shows one range after a fall in listed markets.
Before the fall, private equity was 130,000 of 1,000,000 (13%). Listed equities then fell 30% and bonds 5%: the same 130,000 is 15.8% of 820,500, over its 15% ceiling.
Rule template:allocation_range dimension: classbands: group=Listed equities, hardMin=40, hardMax=60 · group=Bonds, hardMin=20, hardMax=40 · group=Private equity, warnMax=13, hardMax=15
| Holding | Class | Market value |
|---|---|---|
| Global equity fund | Listed equities | 385,000 |
| UK gilts | Bonds | 275,500 |
| Private equity fund (last valuation) | Private equity | 130,000 |
| Cash | Cash | 30,000 |
| Group | Status | Value | Bounds | Headroom to the hard bound | Code |
|---|---|---|---|---|---|
| Listed equities | Compliant | 46.92% | 40% – 60% | 6.92% | WITHIN_LIMITS |
| Bonds | Compliant | 33.58% | 20% – 40% | 6.42% | WITHIN_LIMITS |
| Private equity | Breach | 15.84% | ≤ 15% warning ≤ 13% | -0.84% -2.84% to warning | ABOVE_HARD_MAXIMUM |
WITHIN_LIMITS: The measured value sits inside every approved bound.ABOVE_HARD_MAXIMUM: The measured value exceeds the approved hard maximum, beyond any stated tolerance.
Largest contributors: Listed equities → Global equity fund 46.92% · Bonds → UK gilts 33.58% · Private equity → Private equity fund (last valuation) 15.84%
Computed at build time by the Acclimetry rule engine (backend commit 8197063); the same code runs in the product.
See also
- Strategic asset allocation (SAA)
- Rebalancing band
- Allocation drift
- Passive breach
- Cure period
- Unfunded commitment
Sources
- Cambridge Associates, Role Models: Pensions Can Use Data to Optimize PI Allocations (5 April 2024) · cite only · Read on 14 October 2026
- Altss, Denominator effect (glossary) · terms not verified · Read on 14 October 2026
- Acclimetry rule-template registry (32 templates, methodology options, reason codes and 108 engine-checked cases; backend commit 8197063) · cite only · Read on 14 October 2026