Additional portfolios: Overview, definition, and example
What are additional portfolios?
Additional portfolios refer to new or supplementary collections of assets, investments, financial accounts, or projects that are added to an existing portfolio. These portfolios can be created to expand investment holdings, manage risk, or structure assets based on different strategies or objectives.
For example, an investment firm managing mutual funds may create additional portfolios to include new asset classes, such as real estate or emerging market stocks, alongside its existing equity and bond portfolios.
Why are additional portfolios important?
Additional portfolios are important because they provide flexibility for businesses, investors, and financial institutions to diversify assets, adjust strategies, and optimize financial performance. By creating additional portfolios, entities can better manage risk, separate different types of investments, or comply with specific regulatory or client needs.
For companies managing funds or structured assets, clear contractual terms on additional portfolios help define ownership, management responsibilities, and reporting obligations, ensuring transparency and accountability.
Understanding additional portfolios through an example
Imagine an asset management firm that offers an equity portfolio focused on U.S. stocks. Due to client demand, the firm decides to create an additional portfolio specializing in international equities. This new portfolio operates separately but is managed under the same investment firm, allowing clients to choose different investment strategies.
Similarly, a venture capital firm may have an initial portfolio of technology startups. As the firm grows, it decides to create additional portfolios targeting healthcare and renewable energy startups, ensuring specialized focus and diversification across industries.
An example of an additional portfolios clause
Here’s how an additional portfolios clause might appear in a contract:
"The Manager may establish additional portfolios under this Agreement, subject to the same terms and conditions governing the original portfolio, unless otherwise specified. Each additional portfolio shall be managed independently, with separate asset allocations, investment strategies, and reporting requirements as agreed upon by the Parties."
Conclusion
Additional portfolios allow businesses, investors, and financial institutions to expand their asset holdings, diversify risk, and tailor financial strategies to specific needs. They are commonly used in investment management, venture capital, and structured finance.
By including a clear additional portfolios clause in contracts, parties can ensure transparency, define management responsibilities, and establish rules for the creation and operation of new portfolios within an existing framework.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.