Privat Capital holds a concentrated portfolio of 16-17 stocks. This strategy forces deep conviction in each position and ensures that winners have a meaningful impact on fund performance. Over-diversification can dilute both research focus and the potential returns from a fund's best ideas.

The core engineering of a multi-strategy fund allows it to achieve high returns on low volatility (e.g., 10% on 5 vol). This is because diversification and centralized risk management enable the fund to net out opposing positions internally, avoiding the need to hold separate capital for each side of a trade.

Instead of running a broadly diversified book of merger arbitrage deals, Farallon focuses only on the best large-cap transactions with wide spreads. This selective approach is highly accretive when integrated into a multi-strategy fund where diversification comes from other parts of the portfolio.

The firm's "Capital System" combines top ideas from various analysts and portfolio managers into a single fund. This structure deliberately avoids exposure to any single manager's low-conviction holdings, creating what is effectively a "best ideas" portfolio.

In a TPA model, diversification is a total-portfolio responsibility. This frees individual teams from needing to diversify within their silo. They can build more concentrated, high-conviction portfolios, as their contribution is assessed at the whole-fund level, where diversification is achieved across different strategies.

Farallon’s foundation in merger arbitrage, with its clear upside (deal price) and downside (pre-deal price), created a DNA of probabilistic thinking. This framework of assessing probabilities and expected value is now applied across all of the firm's investment strategies, not just arbitrage.

In Vietnam, the best returns have come from a concentrated, hands-on model similar to a holding company, not traditional diversified PE funds. This approach allows for deep involvement in a few assets within a specific vertical, which is key to navigating the market and driving growth.

Oren Zeev argues that LPs should seek diversification across their portfolio of GPs, not within a single fund. He believes GPs should be concentrated in their best deals to maximize returns, noting that concentration limits at the fund level don't benefit LPs who are already diversified across many managers.

To overcome LP objections to layered fees, fund-of-funds must deliver outsized returns. This is achieved not by diversification, but through extreme concentration. By investing 90% of capital into just 10-13 high-potential "risk-on" funds, the model is structured to outperform, making the additional management fee and carry worthwhile for the end investor.