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📋 Overview

Rebalancing is where collective intelligence becomes action. Our structured approach efficiently translates algorithm outputs into real portfolio changes while minimizing costs and disruptions.
Rebalancing Process Overview
Once our algorithm generates target weights for each company, the next critical step is implementing these targets through portfolio adjustments. This page explains how we transform mathematical outputs into practical rebalancing actions.

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🎯 From Algorithm Outputs to Target Allocations

  • Algorithm Output
  • Target Portfolio
{
  "AITech": 0.15,        // 15% target allocation
  "RoboticsCorp": 0.12,  // 12% target allocation
  "DataSystems": 0.10,   // 10% target allocation
  "CloudPlatform": 0.09, // 9% target allocation
  "DeviceMaker": 0.08,   // 8% target allocation
  // ... additional companies ...
}
The algorithm generates a normalized score SiS_i for each company CiC_i. These scores sum to 1 and represent the ideal portfolio allocation percentages.

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📊 Current Portfolio Evaluation

1

Holdings Assessment

Calculate the current value of promised equity for each company in the village portfolio
2

Valuation Update

Apply the latest pricing information to all holdings using the established valuation methodology
3

Deviation Analysis

Calculate the difference between current and target allocations for each company
4

Prioritization

Rank deviations by magnitude and percentage to identify rebalancing priorities
For each company in the village, we calculate the deviation between current and target allocation: Deviationi=Current Valuei−Target Valuei\text{Deviation}_i = \text{Current Value}_i - \text{Target Value}_i Example Current vs. Target Allocations:
CompanyCurrent AllocationTarget AllocationAdjustment Needed
AITech20%15%-5%
RoboticsCorp8%12%+4%
DataSystems12%10%-2%
CloudPlatform10%9%-1%
DeviceMaker5%8%+3%
Negative values indicate overweight positions requiring reduction, while positive values indicate underweight positions requiring increased allocation.

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🚫 Rebalancing Threshold

Minimum Dollar Threshold

|Deviation| > $10,000

Minimum Percentage Threshold

∣Deviation∣Total Value>2%\frac{|\text{Deviation}|}{\text{Total Value}} > 2\%

Threshold Purpose

Prevents unnecessary transactions for small deviations

Customization

Thresholds can be adjusted based on village size
Not every deviation warrants adjustment. We use thresholds to determine when rebalancing is necessary:
These thresholds help balance the goal of portfolio optimization against the practical costs of making frequent small adjustments. By focusing on material deviations, we reduce unnecessary transaction costs and administrative burden.

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🔄 Rebalancing Mechanisms

  • For Overweight Positions
  • For Underweight Positions
Overweight Position Handling
When a position is overweight, we facilitate the sale of a portion of promised shares:
  • Members with exposure to the overweight company sell a pro-rata portion
  • The sales are coordinated to occur during the same timeframe
  • Proceeds are deployed to underweight positions
The Super Fund can purchase excess exposure:
  • Village transfers promissory notes to the Super Fund
  • Super Fund provides cash or other promissory notes in exchange
  • This creates additional liquidity for rebalancing
Future contributions can be allocated away from overweight positions:
  • New members join with reduced or zero allocation to overweight companies
  • This gradually rebalances the portfolio without requiring sales

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⚠️ Practical Constraints

Transfer Restrictions

Company-specific limitations on equity transfers

Liquidity Limitations

Available liquidity in Super Fund and secondary markets

Minimum Transaction Size

Practical limits on transaction sizes (typically $5,000+)

Tax Efficiency

Avoiding unnecessary taxable events for members
Several real-world constraints affect the rebalancing process:
  • Maintain database of company-specific restrictions
  • Pre-check feasibility of all proposed transactions
  • Develop alternative strategies for restricted companies
  • Monitor Super Fund available capital
  • Track pending village contributions and withdrawals
  • Forecast liquidity needs across the ecosystem
  • Group similar transactions to meet minimum size requirements
  • Combine multiple small adjustments into quarterly batches
  • Prioritize large deviations for immediate action
  • Consider holding periods for potential capital gains/losses
  • Preferentially use new contributions for rebalancing
  • Time transactions to coincide with member tax planning when possible

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Rebalancing Timeline

Automated Rebalancing Timeline (measured in minutes)
Our rebalancing process is fully automated and algorithmic:
1

Algorithm Execution (0-10 minutes)

The system automatically runs the algorithm, calculates new target weights based on the latest data, and analyzes deviations from current allocations
2

Automated Trading (10-45 minutes)

The system automatically generates and executes necessary transactions to align with target allocations, with built-in optimizations for transaction costs and market impact
3

Real-time Finalization (45-60 minutes)

Transactions are automatically reconciled in the system and members receive notifications about portfolio updates (for information only, no action required)
The entire rebalancing process typically completes within one hour. Market conditions may occasionally extend execution time, but the process remains fully automated with no human intervention required.

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Portfolio Drift Management

Portfolio Drift Management
Between formal rebalancing periods, portfolios naturally drift due to:
  • Relative performance differences
  • New members joining
  • Members leaving or experiencing liquidity events
We track drift metrics in real-time to identify when portfolio allocations are moving significantly away from targets:
  • Daily tracking of key metrics
  • Weekly drift reports
  • Alerts for deviations exceeding pre-set thresholds
New members’ contributions are strategically directed to counteract drift:
  • Overweight positions receive reduced or zero allocation
  • Underweight positions receive higher allocation
  • This enables passive rebalancing without requiring existing members to make adjustments
In cases of significant drift between quarterly cycles:
  • Mini-rebalancing can be triggered if drift exceeds 10% of target for major positions
  • Focus on largest deviations only
  • Simplified process with shortened timeline

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Rebalancing Examples

  • Reduction Approach
  • Growth Approach
  • Algorithmic Execution

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Portfolio Status

Village: Tech Sector Village
Total Portfolio Value: $10,000,000Current Allocations:
  • Company A: $4,000,000 (40%) with target weight of 30%
  • Company B: $3,000,000 (30%) with target weight of 35%
  • Company C: $3,000,000 (30%) with target weight of 35%

Reduction Solution

To achieve the target ratios by reducing Company A exposure:
  1. Reduce Company A from $4,000,000 to $2,570,000 (a reduction of $1,430,000)
  2. Total portfolio value becomes $8,570,000
  3. New allocations:
    • Company A: $2,570,000 / $8,570,000 = 30%
    • Company B: $3,000,000 / $8,570,000 = 35%
    • Company C: $3,000,000 / $8,570,000 = 35%
The $1,430,000 of Company A promissory notes can be:
  • Sold to the Super Fund
  • Transferred to another village seeking exposure to Company A

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Performance Tracking

Rebalancing Efficiency

Percentage of target adjustments successfully executed

Implementation Shortfall

Difference between target and achieved allocations

Transaction Costs

Time, effort, and fees required for implementation

Member Satisfaction

Feedback on the rebalancing process from participants
After each rebalancing cycle, we track key performance metrics to continuously improve our process:
The rebalancing process is continuously refined based on performance metrics and member feedback. Our goal is to maximize the benefits of portfolio optimization while minimizing the burden on village members.
This data informs continuous improvements to our rebalancing methodology and implementation process.