Direct investments can be diversified, but not in the same way as a stock portfolio. A family that owns a handful of businesses or properties is concentrated by design. The goal is to choose that concentration on purpose.
Two ways to think about it
Some families diversify within a focus: many deals in one or two sectors they know well, spread across locations, deal sizes and years. Others keep a stable core of public markets and cash and treat direct deals as a smaller, concentrated layer on top. Both approaches can work. What tends to fail is unplanned concentration, where most of the family's liquid wealth ends up in one deal or one partner.
Questions to ask
- How much of total wealth sits in direct deals, and in the largest single deal?
- Are the deals exposed to the same risk, such as one interest rate, one region or one operator?
- Is there enough liquidity outside the deals to meet family needs for several years?
For portfolio structures, see Part 5: Portfolio Models and what centimillionaire family offices invest in.
Educational only. Nothing on this site is investment, tax, legal, accounting or other professional advice, or a recommendation on any security, manager, structure or allocation. Speak with qualified professionals before acting.