Methodology note

Denominators: NAV, gross assets and total assets

The denominator is the base a percentage limit divides by. NAV nets off liabilities and short positions, gross assets add every position's absolute value, and US fund law often uses total assets. The same holding can pass under one base and breach under another, so the policy or a recorded decision must name it.

Applies to these restrictions
Issuer concentration limit (single issuer, single instrument)concentration · Asset allocation ranges (policy ranges and rebalancing bands)allocation_range · Counterparty concentration limitcounterparty_concentration · Household and related-portfolio concentrationrelated_portfolio_concentration · Sector, country and region exposure bandsattribute_exposure · Duration and maturity bandsduration_maturity

Three bases, three answers

Net asset value is assets minus liabilities, so short positions and borrowing reduce it. Gross assets add the absolute value of every position. Total assets count what the fund owns before its liabilities.

Rule sets choose differently. The 1940 Act's diversification test is written against total assets. The SEC's Names Rule measures its 80% policy against net assets plus borrowings for investment purposes.

When the document is silent

Many policies say "of the portfolio" and stop there. Luxembourg's Circular CSSF 24/856 expects contractual limits to state their calculation basis in the fund's documents, such as NAV, capital or gross assets.

Where a policy leaves the base open, Acclimetry records the author's choice as a decision on the rule, so the approver sees it. The registry's worked cases divide by the portfolio's net market value, and several templates record that basis on the result.

Pitfall: shorts shrink the base

A short position or an overdraft lowers NAV, so every long weight rises without a trade. In the example, four issuers sit at 24–28% of a 1,000 long book, but a 100 short cuts the base to 900.

The largest issuer then reads 31.1% against a 30% cap. Measured against gross assets of 1,100, it would read 25.5%.

Pitfall: exemptions change both sides

Exempting a class removes it from the numerator and the denominator. Leaving cash out of a duration average or a country limit can raise the measured figure; see exempt asset classes.

For several portfolios measured together, the base can be the combined value of the set; see combined denominators.

Worked example

A 100 short cuts NAV from 1,000 to 900, so issuer A's 280 reads 31.1% and breaches a 30% cap it met on the long book alone.

Rule template: concentration

dimension: issuer
 Bounds: hard max 30%

Holdings
HoldingIssuerLong / shortMarket value
Issuer A sharesIssuer A–280
Issuer B sharesIssuer B–240
Issuer C sharesIssuer C–240
Issuer D sharesIssuer D–240
Issuer E shortIssuer Eshort-100
Result
GroupStatusValueBoundsHeadroom to the hard boundCode
Issuer A Breach 31.11% ≤ 30% -1.11% ABOVE_HARD_MAXIMUM
Issuer B Compliant 26.67% ≤ 30% 3.33% WITHIN_LIMITS
Issuer C Compliant 26.67% ≤ 30% 3.33% WITHIN_LIMITS
Issuer D Compliant 26.67% ≤ 30% 3.33% WITHIN_LIMITS
Issuer E Compliant -11.11% ≤ 30% 41.11% WITHIN_LIMITS
  • ABOVE_HARD_MAXIMUM: The measured value exceeds the approved hard maximum, beyond any stated tolerance.
  • WITHIN_LIMITS: The measured value sits inside every approved bound.

Largest contributors: Issuer A → Issuer A shares 31.11% · Issuer B → Issuer B shares 26.67% · Issuer C → Issuer C shares 26.67%

Computed at build time by the Acclimetry rule engine (backend commit 8197063); the same code runs in the product.

Questions

Which denominator should a family office policy use?

Usually NAV, because it is what the portfolio is worth and what its reports show. State it in the policy, and say how borrowing and short positions are treated.

Does a cash subscription change concentration limits?

Yes. New cash raises the denominator, so every other weight falls until the cash is invested; a redemption does the opposite.

Sources

Updated: 12 October 2026Acclimetry · Foreranger Ltd