Constant proportion portfolio insurance meaning

Constant proportion portfolio insurance (CPPI) is a dynamic investment strategy in which the manager allocates between risky assets (for example, equities, credit or derivatives) and cash or low‑risk instruments (such as money market instruments or a zero‑coupon bond) by applying a multiplier to the “cushion” (portfolio value minus the agreed “floor”). The aim is to keep the portfolio at or above the floor while retaining upside. It is not a statutory term and is not generally defined by case law; it is a market description used in investment documentation. Key legal points typically addressed in contracts and disclosures include: definition of the floor, cushion and multiplier; rebalancing frequency; any capital protection undertaking; “gap risk” (rapid market falls preventing rebalancing) and potential “cash lock”; costs and fees; triggers for de‑risking, suspension or termination; derivative use, counterparty exposure and collateral; valuation methodology and calculation agent discretion. CPPI structures commonly appear in investment management agreements, UCITS/AIF prospectuses, life assurance wrappers, structured notes and pension mandates. From a regulatory perspective, CPPI engages suitability/appropriateness and product‑governance obligations under UK MiFID/COBS and Irish MiFID/CBI rules, PRIIPs/UCITS disclosure, and limits on leverage/efficient portfolio management. Usage is consistent across England & Wales, Scotland, Northern Ireland and Ireland.