Dedicated Portfolio
What is a Dedicated Portfolio?
A dedicated portfolio is a passively managed portfolio whose cash flows are designed to match the cash flows needed to fulfill a future obligation.
How Does a Dedicated Portfolio Work?
A dedicated portfolio is also referred to as a structured portfolio.
For example, a company with pension obligations that will begin in 10 years may set up a dedicated portfolio that has the twin goals of a) being worth X dollars in 10 years, and b) will generate Y dollars in annual cash flow to match the cash flow needed to fulfill the pension obligations.
A dedicated portfolio is generally made up of investment grade securities that have very low risk of default. Because of the portfolio's low risk and use of investment grade securities, a dedicated portfolio will rarely have the need to be rebalanced (i.e. it can be passively managed).
Why Does a Dedicated Portfolio Matter?
Dedicated portfolios are most appropriate for investors who need a reliable source of income for the future (such as retirement). Because the goal of a dedicated portfolio is to produce stable cash flows, it should be largely invested in investment grade bonds and other income-producing assets with extremely low volatility.
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