Asset Rebalancing

Asset Rebalancing is a module within General Ledger (accessed from the Automatic Entries tab on the Journal Entry supertab) that helps you to maintain preset investment allocations for your Funds with a minimum of effort. You can decide on a particular mix of investments for one group of Funds (for example, endowments), and a different investment mix for another group (for example, pass-through Funds). You can preset several strategies, from aggressive growth, through balanced, to fixed, and let Donor Advisors suggest their preferred strategy. You can even set the investment ratio Fund-by-Fund, which allows you to offer custom tailored investment portfolios as a Donor service. This approach to maintaining the investment mix is an alternative to outsourcing the maintenance to a money manager. It gives you control over rebalancing investments and determines the net transfers that must be made to keep each Fund at its selected mix.

You establish the investment mix for a Fund by setting target percentages for each investment account, that total 100%. Every time you rebalance, the Asset Rebalancing utility makes the necessary Fund-level debits and credits to restore each Fund's investment balance to its target ratio.

You can also use this utility as a cash management tool (regardless of whether you use it for investment balancing). You can include checking among the investment accounts and set its target asset percentage to 0%. Then, when you run Asset Rebalancing, it will make Journal entries to bring the checking balance to zero. Refer to Managing Cash via Asset Rebalancing for more information.

You can run the rebalancing process as often as needed. To minimize the number of actual buys and sells that you need to perform to keep ratios within policy goals, you can select an offset Fund that will absorb any transfers that would result from the cumulative effect of rebalancing at the Fund level. You can then periodically make actual transfers and record them directly into the General Ledger Journal on behalf of the offset Fund to rationalize the overall balance.

Regardless of specific policy or practice, the frequency of rebalancing depends on how quickly the variance grows between actual and target investment ratios.

If you use an Offset Fund, you can temporarily rebalance at the Fund level within FIMS without making any actual transfers among your investments. However, at some point, the Offset Fund will exhaust its resources in a pool, and you will need to make actual transfers (for example buying securities with cash from a money market pool). You should record these transfers by making Journal entries on behalf of the Offset Fund or by running Asset Rebalancing only for the Offset Fund.