Equity Derivatives and Structured Products Glossary: Constant proportion portfolio insurance (CPPI)


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Constant proportion portfolio insurance (CPPI)

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Constant proportion portfolio insurance (CPPI)

Constant proportion portfolio insurance (CPPI)

A fund management technique that aims to provide maximum exposure to risky assets while still protecting investors’ capital. The technique requires the manager to dynamically rebalance the Portfolio between risky assets (such as equities) and safe assets (such as bonds) according to a quantitative model. The level of risky assets is managed such that at all times, in the event of a market crash, the remaining NAV of the fund is still sufficient to meet the stated Protection level. Generally the proportion of Risky Assets in the fund is increased when these perform well and decreased when these perform poorly. The capital Protection level may be fixed, or rachet up(reset) according to a certain percentage of the fund NAV achieved during the fund term.

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