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Drift (Portfolio)
Definition
Portfolio drift occurs naturally as different asset classes earn different returns: an asset class that outperforms increases in portfolio weight, while underperforming assets shrink in relative terms. Over time, a portfolio that is not rebalanced will drift toward the highest-returning asset classes — which typically means increasing equity risk. Drift is not inherently undesirable (it reflects letting winners run), but it changes the portfolio's risk profile, sometimes materially, and may violate the investment policy statement's asset allocation ranges.
In the Context of Endowment Management
In endowment portfolios, drift between private and public equity exposures is a common and significant phenomenon: during bull markets, private equity holdings may grow from 15% toward 25%+ of the portfolio as public equity also appreciates, materially increasing the total equity risk exposure. Investment committees should monitor drift and its impact on total portfolio risk between formal rebalancing events.