Portfolio Concentration Limits

Definition

Definition Concentration limits are formal thresholds that restrict how much of a portfolio can be allocated to a single exposure. Limits can apply at multiple levels: manager, strategy sleeve, sector, geography, or underlying issuer. These limits exist to prevent a single adverse outcome from dominating overall portfolio results. Allocator Context Institutions often codify concentration limits in IPS and mandate guidelines. Family offices may set them informally, but the same logic applies. Limits become binding when markets move and exposures drift upward, forcing reallocations, reduced new commitments, or secondary sales. Decision Authority Breaching or approaching concentration limits typically triggers escalation: IC review, risk committee involvement, or automatic constraints on new allocations. A manager can be approved but still receive a smaller ticket if concentration limits are tight. Why It Matters for Fundraising Many fundraising “no’s” are concentration-driven rather than manager-quality-driven. Managers that understand the allocator’s concentration framework can position the strategy as diversifying rather than duplicative—and identify realistic ticket size. Key Takeaways Limits are governance tools, not preferences Binding during stress and exposure drift Can cap allocations despite strong interest Diversification positioning improves fundraising outcomes