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Diversification is one of those investment principles that almost everyone agrees with in theory and fewer people apply well in practice. Most investors understand that concentrating everything in a single asset is risky. What is less well understood — particularly by people who have built significant wealth — is what genuine diversification actually looks like at that level, and why the conventional advice designed for retail investors often falls short for those with more complex financial situations.
At Oros Consultancy, the investors we work with have typically already built real wealth. Many of them have done so by concentrating — by backing themselves, their business, or their sector with conviction and commitment over many years. That concentration was often exactly the right strategy for the wealth-building phase. The question we help them think through is what the right strategy looks like now.
Why conventional diversification advice does not always apply
The standard diversification advice — hold a mix of equities, bonds, cash, and property across different geographies and sectors — is sensible for retail investors managing relatively modest sums through conventional investment platforms. For high net worth individuals, it is often insufficient on its own.
The problem is not that the principle is wrong. Spreading risk across different asset types and geographies is genuinely valuable. The problem is that conventional public market diversification still leaves an investor highly exposed to a single risk factor: the behaviour of financial markets.
When markets fall sharply — as they did in 2008, in early 2020, and during the interest rate shock of 2022 — equities, bonds, and listed property funds tend to fall together. The correlations between different public market asset classes, which appear low during calm periods, tend to spike precisely when investors most need diversification to work. A portfolio that looks well-diversified across fifteen different listed funds can still lose 25% of its value in a matter of weeks if market sentiment turns sharply negative.
Genuine diversification, at the level that institutional investors — pension funds, endowments, sovereign wealth funds — have practised for decades, goes beyond public markets entirely. It includes asset classes whose returns are driven by factors other than market sentiment: private equity, private credit, real assets, and other alternative investments that are valued on their own fundamentals rather than repriced daily by financial markets.
What genuine diversification looks like for HNW investors
For a high net worth individual with a well-established financial position, genuine diversification typically involves thinking about a portfolio in layers, each serving a distinct purpose.
The first layer is liquidity. Cash, money market instruments, and other assets that can be accessed immediately without loss of value. This layer exists not to generate significant returns but to ensure that unexpected expenses, opportunities, or changes in circumstance can be met without disturbing the rest of the portfolio. The size of this layer depends on personal circumstances — income, commitments, lifestyle — but having too little liquidity is one of the most common and most costly mistakes that otherwise sophisticated investors make.
The second layer is conventional public market investment. Listed equities, government and corporate bonds, and listed property. This layer provides broad market exposure, reasonable liquidity, and the kind of transparent, regulated investment environment that most people are familiar with. It is an important part of a balanced portfolio, but it is not the whole story.
The third layer is private market investment. Private equity, private credit, buy-and-build strategies, and other alternative assets that are not available through conventional platforms. This layer is illiquid — capital committed here cannot typically be accessed on demand — but it offers several things that public markets cannot easily provide.
It offers exposure to return drivers that are not correlated with daily market sentiment. It offers access to the illiquidity premium — the additional return that investors can historically expect in exchange for committing capital for a defined period. And it offers participation in value-creation strategies, such as consolidation plays in fragmented sectors, that simply do not exist in the public market universe.
How much should sit in private markets?
This is the question that most investors want a specific answer to, and it is also the question that most resists one. The right allocation to private markets depends on the individual investor's overall financial position, their income, their other assets and liabilities, their investment horizon, and their genuine tolerance for illiquidity.
What the evidence from institutional investors suggests is that meaningful allocations to private markets — not token ones — have historically contributed to better risk-adjusted returns over the long term. Many large pension funds and endowments hold between 20% and 40% of their total assets in private markets. That does not mean 20% to 40% is right for every high net worth individual — institutional investors have characteristics that most individuals do not — but it does suggest that the instinct to keep private market allocations very small may be leaving meaningful return potential on the table.
A sensible starting point for most investors is to assess what proportion of their total portfolio they are genuinely comfortable committing for a period of five years or more, knowing they cannot access it on demand during that time. That is the realistic ceiling for private market allocation, and it varies enormously from one investor to the next.
The concentration risk that wealthy investors often overlook
One form of concentration risk that is particularly common among high net worth individuals, and particularly underappreciated, is concentration in a single asset class that has been the primary source of their wealth.
An entrepreneur who has built and sold a business may have converted that wealth into a diversified portfolio — but if that portfolio is predominantly listed equities and UK residential property, it may be less diversified than it appears. Both of those asset classes are sensitive to UK economic conditions, interest rate movements, and financial market sentiment. A shock that affects one is likely to affect the other.
Similarly, a professional with a large pension pot invested in a default pension fund is likely to have the great majority of their retirement savings in listed equities and bonds — conventional public market assets that move together in periods of stress.
Adding a meaningful allocation to private market investments whose returns are driven by operational performance, sector fundamentals, and management quality — rather than by financial market sentiment — provides a form of diversification that a portfolio of listed assets simply cannot replicate internally.
Where Oros Consultancy fits in
Oros Consultancy exists to give qualifying high net worth individuals access to carefully selected private market investment opportunities that can form part of a genuinely diversified portfolio.
We do not provide personal financial advice, and we always encourage investors to discuss any opportunity with an Independent Financial Adviser who can assess its suitability in the context of their complete financial picture. But we can introduce opportunities, explain them thoroughly, and help investors understand how they might fit within a broader portfolio strategy.
If you would like to explore what private market diversification might look like for your own circumstances, contact the Oros Consultancy team for a no-obligation conversation.
Your capital is at risk. You may lose all the money you invest. Returns are not guaranteed and past performance is not a reliable indicator of future results. This article does not constitute financial advice and should not be relied upon as such. These investments are intended for Certified High Net Worth Individuals and Self-Certified Sophisticated Investors as defined under the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005. If you are in any doubt as to whether this investment is appropriate for you, please seek independent financial advice from a person authorised by the Financial Conduct Authority.