Portfolio Concentration Limits

Allocator relevance: A core risk control—prevents a few positions or correlated bets from dominating outcomes and violating mandate constraints.

Expanded Definition

Concentration limits exist to avoid unintended fragility. They can apply at multiple layers: single position size, manager exposure, sector tilt, geographic exposure, and even look-through exposure across funds. In private markets, concentration can build quietly through follow-ons, co-investments, and overlapping exposures, making look-through analysis critical.

For allocators, concentration limits are not just “rules”—they are the mechanism that keeps portfolio construction aligned with risk budgets and liquidity reality.

How It Works in Practice

Allocators define limits in IPS or committee guidelines, then monitor exposures as commitments and market values change. When limits are breached, actions may include pausing new commitments, rebalancing, selling secondaries, or adjusting pacing.

Decision Authority and Governance

Governance defines who can approve exceptions and what documentation is required. Strong governance prevents “exception drift,” where limits exist in theory but are ignored in practice.

Common Misconceptions

• Concentration limits reduce returns by forcing diversification.
• Limits are only needed for public markets.
• Limits can be monitored without look-through.

Key Takeaways

• Limits protect against correlated fragility.
• Look-through exposure is essential in private portfolios.
• Exceptions should be rare and documented.