Three-Vector Alternatives Diversification
Diversify private investments by strategy, manager, and vintage year
- Difficulty
- Advanced
- Time to result
- ~ongoing to results
- Steps
- 5
- Confidence
- 99%
Evaluate diversification across three separate vectors. First, spread exposure across strategies under the alternatives umbrella, such as buyout, growth, venture, private credit, and real assets. Second, diversify by manager so the portfolio is not dependent on one team's sourcing, judgment, or operating process. Third, diversify by vintage year through programmatic annual commitments. The vintage dimension matters because investors cannot reliably know which year will offer the best opportunities, and difficult periods may be attractive times to allocate. The framework also exposes an implementation constraint: a genuinely diversified program may require many commitments each year, so the investor must have enough professional diligence capacity to select and monitor managers rather than pursuing diversification by count alone.
Origin
Extracted from Masters in Business
Core principles
- 01A diversified alternatives sleeve needs more than multiple asset classes
- 02Different managers reduce dependence on one investment process
- 03Different vintage years reduce reliance on market timing
- 04Consistent annual allocation matters most when conditions feel difficult
How to run it
- 1
Map strategy exposure
Group current and proposed holdings by alternatives strategy and identify missing or dominant lanes.
Pro tip Look beneath the broad alternatives label.
Watch out Several funds in one strategy do not create strategy diversification.
- 2
Map manager exposure
Measure how much portfolio risk depends on each manager and investment process.
Watch out Different fund names can still leave the portfolio concentrated with one manager.
- 3
Map vintage exposure
Chart commitments by year to reveal whether the portfolio depends heavily on one market environment.
Pro tip Use a recurring annual allocation schedule.
Watch out Trying to select only the best-looking years amounts to market timing.
- 4
Find the dominant vector
Identify the largest concentration across strategies, managers, and vintages, then prioritize the next commitment that reduces it.
Watch out Do not add a weak manager merely to increase the number of holdings.
- 5
Match breadth to diligence capacity
Confirm that the investor or advisor can properly diligence and monitor the number of commitments required by the diversification plan.
Pro tip Use an advisor with manager-selection capabilities when the required breadth exceeds internal capacity.
Watch out Diversification without adequate diligence can replace concentration risk with selection risk.
In the wild
Olson describes an individual alternatives investor spreading exposure across strategy, manager, and vintage year. The investor makes allocations every year rather than trying to predict the best market, even though a sufficiently broad program may require ten or fifteen commitments annually.
→ The portfolio is less dependent on one strategy, one investment team, or one entry year.
Common mistakes
Diversifying only by strategy
A portfolio can span asset classes while remaining concentrated in one manager or vintage.
Timing annual commitments
Pausing because conditions feel bad can miss the periods Olson says may offer the best opportunities.
Exceeding diligence capacity
A large commitment count becomes dangerous if the investor cannot properly assess enough managers.
Is it for you?
Best for
It is best for investors constructing a multi-fund private-markets program over several years.
Not ideal for
It is not ideal for an investor with too little capital or diligence capacity to support multiple commitments.
From the transcript
“One is diversification of strategy, which you talked about under the al umbrella number two, diversification by manager, right you want to work with different…”
“So we think it's very important for clients to be pretty programmatic about making allocations every single year, because again, you don't want to market…”
“And so you know, and then when you dial that back, you might be needing to make ten commitments a year, fifteen commitments a year.”
From the episode
Alternate Investing: Masters in Business with Kristin Olson