Dynamic asset allocation
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Dynamic Asset Allocation (CPPI) or Constant-Proportion Portfolio Insurance (CPPI) is a strategy used by investment products such as hedge funds, mutual funds, credit derivatives, index funds, principal protected notes (also known as guaranteed linked notes) and other structured investment products to achieve exposure to various investment opportunities and provide 100% principal protection.
In most cases, the make-up of CPPI consists of the guarantee, which is notionally related to a zero-coupon bond and an underlying investment. Assets are dynamically shifted (or allocated) between these two components depending largely on the performance of the underlying investments.
In some cases, certain products can use a borrowing facility to enhance exposure if the underlying investments experience strong returns. If the underlying investments decline in value, CPPI automatically deleverages, reducing exposure in falling markets.