Case 025Lump-sum allocationHard
An adviser runs the same 60/40 policy for an Rs 8 crore client and an Rs 8,000 crore family trust. Where does the large mandate break, and how would you allocate each?
1The situation
An adviser uses one policy for two clients: a professional with Rs 8 crore and the invented Orvella Family Trust with Rs 8,000 crore. The policy is 40% large-company equity, 10% small-company equity held as five 2% positions, 10% private markets and 40% bonds.
A typical small company in the universe is worth Rs 4,000 crore and trades about 0.2% of its value a day, Rs 8 crore. A prudent trader takes no more than a fifth of daily volume. Private market funds typically ask a minimum commitment of Rs 1 crore per investor, a framework figure to confirm, and a typical fund is Rs 500 crore, of which no single investor should be more than a fifth.
2Your task
Show where the same weights work and where they break at each size, and say how you would change each allocation.
Quick check
How many trading days would Orvella need to buy or sell one 2% small-company position, taking a fifth of daily volume?
Worked solution
Try it on paper, then open one step at a time.
30-second answerThe answer to give first
The small-company sleeve breaks for the trust and the private sleeve breaks for the individual. A 2% position for Orvella is Rs 160 crore, 4% of a Rs 4,000 crore company and about 100 days to exit; for the Rs 8 crore client it is Rs 16 lakh and trades in minutes. Orvella's Rs 800 crore private sleeve needs 8 or more funds, while the client's Rs 80 lakh is below a single fund's minimum.
Step 1Why does the same policy not work at both sizes?
A family can shop for groceries at any corner store; a hotel chain buying the same basket moves the price and has to contract with farms. Weights are scale-free, but markets are not: position size relative to a company's value and its daily trading decides whether a weight can actually be held. The Rs 8 crore client's constraint is minimum ticket sizes; the Rs 8,000 crore trust's constraint is market capacity. The same 60/40 policy runs into opposite walls.
Step 2How far does the trust's small-company sleeve break?
Run the numbers for one position. Rs 160 crore is 4% of a Rs 4,000 crore company. At a fifth of Rs 8 crore of daily trading, it takes about 100 trading days to build and as long to sell, and the buying itself would push the price up. To exit a Rs 160 crore position within ten days, the company would need to be worth about Rs 40,000 crore, which is no longer a small company. So the trust either holds many more, smaller positions, accepts that its small-company sleeve is illiquid, or uses the sleeve's money differently.
Step 3And where does the small client's policy break?
At the private sleeve. 10% of Rs 8 crore is Rs 80 lakh, below a typical Rs 1 crore minimum commitment, and even at the minimum it would be one fund, one manager and one vintage year, which is concentration, not diversification. For the small client, private markets are not investable at a sensible size, so the weight moves elsewhere; for the trust, Rs 800 crore needs at least 8 funds at Rs 100 crore each, committed across several years. The bond sleeve shows the same pattern in reverse: the client holds bond funds, while Rs 3,200 crore can buy bonds directly and even negotiate private placements.
| Sleeve | Rs 8 crore client | Orvella, Rs 8,000 crore |
|---|---|---|
| Large-company equity, 40% | Index funds, trades in seconds | Direct holdings; still liquid |
| Small-company equity, 10% | Five 2% positions, easy | Twenty or more 0.5% positions, or a smaller sleeve |
| Private markets, 10% | Below minimums: move to liquid alternatives or bonds | 8 or more funds, paced over vintages |
| Bonds, 40% | Bond funds | Direct bonds and private placements |
Step 4What is the answer an interviewer wants?
That size changes the investable set, and the policy should follow what can be held, not the other way round. For the small client: keep the liquid sleeves, replace private markets with something she can reach, and watch fees and tax, which matter more than capacity at her size. For the trust: cap any holding at a share of a company's value and of its daily volume, spread the small-company sleeve across many more names, and build private markets as a multi-year programme. Say the limit: the thresholds used here are illustrations, and the right cap on market impact depends on how quickly the trust may ever need to sell.
Where candidates lose it
The usual answer is that the weights stay the same and only the rupee amounts scale. That misses the whole question: at Rs 8,000 crore a 2% small-company position is 4% of the company and five months of trading.
The second miss is looking only at the large mandate. The small client has a capacity problem too, but at the other end: minimum tickets rule out a sleeve the policy assumes she can hold.
What the interviewer asks next
- How many small-company names would Orvella need to keep each position under five days of trading?
- Would you let the trust hold 10% of a small company it believes in? What comes with that stake?
- How would you pace Rs 800 crore of private market commitments over five years?
Asked at Scotiabank, Sales and Trading, Toronto, 2025 (Wall Street Oasis): How would you allocate $1 million versus $1 billion?
Company names and figures are illustrative.