The Illusion of Diversification in Private Markets

More funds don't automatically mean a more diversified portfolio. Increasingly, they can mean more clutter. In a Wealth Management article, KPC Private Funds CEO Dean Rubino challenges the assumption that adding holdings improves diversification on its own.

His core argument: a portfolio can hold 15 distinct strategies where one position drives nearly all the returns, another drives nearly all the risk, and the rest sit idle, contributing little to either. That's not an optimized portfolio; it's a diversified-looking one with a capital-efficiency problem.

"The optimal portfolio is not the one with the most investments. It is the one where return, risk and diversification are all accounted for at the position level."

Rubino's framework measures three things at the position level: return contribution, risk contribution, and diversification contribution as a signed value, showing whether a fund is a diversifier or a concentrator. The takeaway: as private markets access becomes commonplace, the real differentiator won't be which funds advisors can get into, but whether they understand what each position is actually doing once it's there.