When is a concentrated manager structure (few managers) preferable?

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A concentrated structure uses 1-3 managers per asset class with large per-manager allocations. Preferable when: 1. High conviction in specific managers with sustainable edge — research justifies the bet. 2. Desire for differentiated outcomes — diversified structures deliver index-like results after fees. 3. Benefits from scale/fee negotiation — large mandates command better fees and bespoke terms (side letters, MFN clauses, co-investment rights). 4. Operational simplicity — fewer IMAs, fewer reports, fewer relationships to monitor. 5. Governance supports concentrated risk — trustees/board accept potential short-term underperformance. Considerations for concentration risk: - Key-person risk at manager level: loss of lead PM hits disproportionately - Style/timing risk: concentrated in one style means missing opposite-style rallies - Governance risk: pressure to fire after a rough period, locking in losses Example: Clearhaven Endowment ($1.2B) uses concentrated structure for small-cap value — single manager Ironspring Capital at $180M of a $600M allocation (30%). Rationale: (a) 15-yr track record, (b) proprietary research edge, (c) 20 bps fee savings on $180M = $360k/yr, (d) quarterly transparency meetings, (e) side letter with MFN clause. ```mermaid flowchart TD A[Concentrated
1-3 managers] --> B{Pros} A --> C{Cons} B --> D[Fee power] B --> E[Differentiation] C --> F[Key-person risk] C --> G[Style timing risk] ``` Psychological test: if trustees cannot tolerate a 3-year period of 300 bps underperformance without firing, concentrated structure is wrong — premature termination destroys value. Concentration requires governance conviction AND economic conviction.

When is a concentrated manager structure (few managers) preferable?

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