Portfolio Concentration Controls

Portfolio Concentration Controls are governance rules that cap exposure across multiple dimensions: manager concentration, strategy concentration, geographic concentration, factor overlap, and illiquidity. Concentration is not inherently bad—many portfolios are intentionally concentrated. The risk is unmanaged concentration: exposure grows through drift, re-ups, and correlated strategies that look different on paper.

From an allocator perspective, concentration controls are what keep conviction from becoming fragility.

How allocators define concentration risk drivers

Allocators evaluate concentration through:

• Single manager limits: exposure caps by NAV/commitment
• Strategy and theme limits: preventing thematic pile-ups
• Vintage concentration: limiting same-year commitment clustering
• Factor overlap: correlation and beta clustering across managers
• Illiquidity concentration: lockups and gating exposure
• Look-through exposure: underlying sector/asset exposures across vehicles
• Governance triggers: what happens when limits are reached

Allocator framing:
“Is concentration intentional and governed—or accidental and discovered only in stress?”

Where concentration controls matter most

• niche strategies with correlated risks
• portfolios using multiple wrappers around the same factor exposure
• periods of strong performance where drift increases concentration
• portfolios scaling private markets and co-invest programs

How controls change outcomes

Strong concentration discipline:

• reduces blow-up risk and governance backlash
• keeps diversification real
• improves stability of pacing and rebalancing
• supports consistent manager selection standards

Weak concentration discipline:

• produces surprise drawdowns and forced de-risking
• increases regret-driven manager churn
• causes policy breaches that stall new commitments
• undermines portfolio construction credibility

How allocators evaluate discipline

Conviction increases when:

• limits are explicit and measured look-through
• drift is monitored and corrected
• overlap is treated as concentration, not diversity
• breaches trigger clear actions

What slows decision-making

• no look-through analytics
• limits that exist but aren’t enforced
• exceptions without documentation
• confusion between “names” diversification and factor diversification

Common misconceptions

• “We have many managers, so we’re diversified” → overlap can be high.
• “Concentration only means single names” → factors and liquidity concentrate too.
• “Limits reduce returns” → unmanaged concentration destroys governance.

Key questions during diligence

• What are your concentration limits by manager and strategy?
• Do you measure factor overlap and look-through exposures?
• How do you handle drift-driven breaches?
• What exceptions are allowed and who approves them?
• How do concentration limits interact with pacing decisions?