Concentration Risk
Concentration risk is the exposure risk created by allocating too much capital to a single manager, strategy, asset, or position.
Definition
Concentration risk increases downside vulnerability and can violate policy limits even when expected returns are attractive. Allocators manage it through sizing rules, diversification, and exposure caps. Allocator Context Institutions often have explicit concentration limits by manager and strategy; family offices may concentrate more but typically do so intentionally based on conviction and control preferences. Decision Authority Large allocations relative to portfolio size often trigger IC escalation or additional risk review. Why It Matters for Fundraising Managers should understand the allocator’s sizing rules and propose realistic allocation ranges; oversizing requests stall approvals. Key Takeaways Sizing constraint, not just “risk theory” Often written into policies Drives ticket size feasibility Common reason allocations get capped