7. Using Derivatives When Rebalancing a Multi-Asset Portfolio with Private Investments

Rebalancing a multi-asset portfolio with futures contracts offers institutional investors a dynamic and efficient approach to managing asset allocation and mitigating risk. This chapter examines the use of futures in rebalancing portfolios containing both public and private assets, addressing the challenges posed by private assets' illiquidity and long investment horizons. Futures allow portfolio managers to quickly adjust exposures, ensuring alignment with strategic asset allocation targets without the need for direct transactions in less liquid underlying assets. Using illustrative examples, the chapter demonstrates how futures contracts, such as S&P 500 E-mini and Euro Stoxx 50, can be employed to offset deviations in equity exposures caused by market fluctuations. Practical considerations, including risk analysis, margin requirements, and advanced techniques like beta-adjusted rebalancing, are explored to optimize portfolio management. The chapter emphasizes futures' role in maintaining balanced, diversified portfolios while efficiently managing risk and capital.