Structured Portfolios
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Structured portfolios enable tranching on TrueFi, creating the opportunity for lenders to participate in distinct “slices” of a given portfolio, each with their own risk-reward profile.
Structured portfolios also introduce the concept of a capital formation period. Lenders can commit capital to a portfolio smart contract, with assurances that if the portfolio does not meet certain requirements (e.g. reach certain size or subordination ratios) within a given time period, funds will be returned to lenders with no fees incurred.
A example of a Structured Portfolio on TrueFi

What is tranching?

A tranche (from French, a “slice” or “portion”) refers to a financial product that can be split into distinct pieces that can be offered to buyers or lenders, each with their own risk-reward profile.
Structured portfolios can be created with up to three tranches, meaning they can also support two tranche or unitranche deals.

How do interest & repayments flow to lenders?

Let's take a portfolio with 3 tranches: A/B/C, with A being most senior.
In this example, Tranche A has a fixed interest rate of 6%, Tranche B has a fixed interest rate of 10%, and Tranche C receives any excess funds in the portfolio after Tranches A and B have been paid amounts owed. Tranche A has $6mm in principal has a 35% attachment point, subordinated by Tranche B ($2.5mm principal), and Tranche C ($1.5mm principal).
Over the course of the portfolio, each tranche linearly accrues interest owed based off its coupon rate. For instance, after 30 days tranche A with 6% interest rate is owed $6.03mm =$6mm*[1+(6%*(30/365))] and after 365 days it is owed $6.36mm =$6mm*(1+6%).
When funds are repaid to the portfolio, they are distributed by a waterfall where the most senior tranche's amount owed must be repaid before the subordinated tranche can withdraw. The following illustration shows how such a portfolio would handle various scenarios:
Illustrative scenarios for a Structured Portfolio

What is the capital formation period?

During the capital formation period, lenders can commit funds to one or more tranches of the portfolio, with assurance that the portfolio smart contract will return funds if certain requirements are not satisfied. If requirements are not satisfied by the end of the period, then capital is returned to lenders with no additional fees.
In this way, lenders can stipulate that deals must reach a specific minimum size and/or with specific ratios in order to go live.
For example, a structured portfolio may launch with a capital formation period of 30 days, with requirements that the total deal size is at least $5mm with at least 30% of funds in the junior tranche. If the portfolio does not meet this criteria at day 30, the portfolio will return funds to lenders and move to 'Closed' status.

How are lender restrictions / permissioned portfolios managed?

Portfolio managers ("PMs") can define lenders access rules / restrictions for each individual tranche. Like other portfolios on TrueFi, PMs can set their own policies for permissioned or permissionless pools.
For example, a PM could make the equity tranche open to only one specific wallet address, while enabling all ID verified addresses to participate in the junior and senior tranches.

What are the fees on structured portfolios?

Lenders in portfolios pay a standard protocol fee of 50 bps (0.50%) per annum to the TrueFi DAO treasury. Fees accrue block-by-block, meaning that if a lender puts 10,000 USDC into a portfolio for 30 days, the lender would accrue a protocol fee of ~4 USDC over the course of 30 days.
Protocol Fee example
Sally puts 10,000 USDC into a portfolio for 30 days, where protocol fee = 50 bps per annum.
Assuming the value of Sally's principal grows linearly to 10,100 USDC during this time (thus avg. position value of 10,500 USDC), Sally would accrue and pay a protocol fee of 4.32 USDC over the course of 30 days:
Protocol fee = 10,500 USDC * 0.50% * (30/365) = 4.32 USDC
Additionally, PMs can set optional Portfolio Fee(s). These fees are paid by lenders to the PM. Portfolio fees can be configured separately for each tranche, and can be configured such that they are (i) accrued linearly over time, (ii) paid at deposit, or (iii) paid at withdrawal.
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On this page
What is tranching?
How do interest & repayments flow to lenders?
What is the capital formation period?
How are lender restrictions / permissioned portfolios managed?
What are the fees on structured portfolios?