Methodology note
Exempt asset classes
An exempt class is left out of a limit's measure because the limit does not apply to it. Exemption removes the class from both the numerator and the denominator. That changes the result, often upwards: excluding cash from a duration average raises the average.
duration_maturity · Sector, country and region exposure bandsattribute_exposure · Credit quality floor (minimum rating)credit_quality · Illiquid assets limit (liquidity profile)liquidity_profile · Time-to-liquidate limittime_to_liquidate · Custom data-field bandscustom_field_bandBoth sides of the ratio
An exempt class leaves the measure completely. In a country or sector band, the registry excludes exempt classes from both sides of the ratio. In a custom field band, they are left out of every group.
This differs from a class with a value of zero. Cash counted at zero duration pulls an average down, while exempt cash does not count at all.
Two examples from one book
Take bonds of 400 at 3 years and 400 at 12 years, plus 200 of cash. With cash exempt, the duration average is 7.5 years and breaches a 7-year cap. With cash included at zero, it is 6.0 years and passes.
A country limit shows the effect too. Without an exemption, cash has no country, so the rule cannot settle. With cash exempt, a UK weight of 450 is 56.25% of the remaining 800.
When exemption is right
Exempt a class when the limit's concept does not apply to it: cash has no country or credit rating in the policy's sense. Do not exempt a class to make a limit easier to meet.
Policies are often silent on this. Record the choice as an author decision, because it changes the result as much as the bound does.
Pitfall: exempt is not ungoverned
An exempt class still needs its own limit if the policy cares about it. A cash band, or a cap on the exempted funds, keeps the exempt weight from growing unnoticed.
Worked example
With cash exempt, the bonds' value-weighted duration is 7.5 years, over a 7-year cap; counted at zero duration, the cash would bring it to 6.0.
Rule template:duration_maturity fieldCode: DURATIONexemptClassNames: Cash
Bounds: hard max 7 years
| Holding | Class | Market value | DURATION |
|---|---|---|---|
| Short-dated gilts | Bonds | 400 | 3 |
| Long-dated gilts | Bonds | 400 | 12 |
| Cash at bank | Cash | 200 | (blank) |
| Group | Status | Value | Bounds | Headroom to the hard bound | Code |
|---|---|---|---|---|---|
| Weighted average | Breach | 7.5 years | ≤ 7 years | -0.5 years | ABOVE_HARD_MAXIMUM |
ABOVE_HARD_MAXIMUM: The measured value exceeds the approved hard maximum, beyond any stated tolerance.
Largest contributors: Weighted average → Long-dated gilts 12 years, Short-dated gilts 3 years
Computed at build time by the Acclimetry rule engine (backend commit 8197063); the same code runs in the product.
Questions
Should cash be exempt from a credit limit?
Often, if the credit floor is meant for bonds. State it in the rule, so cash is not mistaken for an unrated holding.
Can a class be exempt from one rule and not another?
Yes. Exempt classes are a parameter of each rule version, so cash can be exempt from a duration band and still counted elsewhere.