portfolio-construction - MediaHedge Underwriting Knowledgebase

# Portfolio Construction Portfolio construction aggregates exposure by common economic failure driver rather than nominal deal count. A collection of sound loans can remain fragile if they depend on the same distributor, incentive program, [[wiki/concepts/completion-protection|completion guarantor]], sales agent, producer, bank, platform, collateral market or collection window. ![[assets/diagrams/portfolio-concentration-map.svg|Conceptual portfolio map connecting exposure to common economic failure drivers]] *Conceptual view: the map identifies dimensions to measure; it does not represent MediaHedge portfolio holdings or performance.* ## Dimensions 1. **Obligor and counterparty:** distributors, platforms, governments, insurers, guarantors, collection managers, account banks and affiliates. 2. **Collateral and structure:** [[wiki/concepts/pre-sales-collateral|pre-sale]], [[wiki/concepts/tax-credit-collateral|tax-credit]], [[wiki/concepts/gap-collateral|gap]] and other exposures measured by principal and stressed loss contribution. 3. **Production ecosystem:** producers, sales agents, jurisdictions, unions, vendors, genres and completion dependencies. 4. **Maturity and liquidity:** expected collections, extensions, undrawn commitments and funding obligations. 5. **Risk and return cohorts:** score, advance rate, exception, duration, delinquency, recovery and realized economics. ## Allocation Process Test each proposed loan for standalone credit quality and incremental portfolio impact. Measure current funded principal, committed but undrawn amounts and stressed loss contribution. Use hard prohibitions, approval thresholds and watch levels with clear calculation rules. Correlation overlays capture shared delivery and market dependencies. Maturity ladders and reserve forecasts test whether collections can support commitments. Exceptions consume a finite budget attributed to the relevant risk factor. ## Investor Reporting Report exposure and availability by obligor, collateral type, jurisdiction, guarantor, producer, vintage, maturity and internal risk tier. Show top concentrations, limit headroom, watch-list migration, weighted advance rates, expected-loss contribution and return attribution. Approval should occur before a breach; cure options can include paydown, syndication, reserve, hedge or temporary purchase suspension. ## Limits and Failure Modes Borrower SPVs, titles and territories do not create diversification when the underlying failure driver is shared. Different collateral categories within one film may all depend on delivery. Guarantees and insurance reduce net exposure only when enforceable, collectible and not concentrated in the same provider. Historical low loss may reflect a small sample, benign vintage or unresolved extensions. Correlation and illiquidity commonly rise together in stress. ## External Context The SEC's [Asset Allocation and Diversification](https://www.investor.gov/introduction-investing/getting-started/asset-allocation) page provides a general explanation of diversification and concentration. It is broad investor education, not a substitute for private-credit concentration definitions, stress testing or transaction diligence. Links checked: 2026-08-09. ## Connections Portfolio construction aggregates the outputs of [[wiki/concepts/loan-sizing|Loan Sizing]], [[wiki/concepts/monitoring-and-servicing|Servicing]], [[wiki/concepts/forward-flow-governance|Forward-Flow Governance]] and [[wiki/concepts/financier-return-economics|Return Economics]]. ## Continue Exploring [[MediaHedge Knowledgebase|Home]] · [[wiki/syntheses/financier-diligence-route|Financier’s Guide]] · [[wiki/syntheses/credit-lifecycle|Credit Lifecycle]]