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.
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An LP's diversification strategy across different venture funds is undermined when every fund converges on a single theme like AI. This creates a highly correlated portfolio, concentrating systemic risk rather than spreading it. The traditional diversification benefits of investing across multiple managers, stages, and geographies are nullified.
Limited Partners should resist pressuring VCs for early exits to lock in DPI. The best companies compound value at incredible rates, making it optimal to hold winners. Instead, LPs should manage portfolio duration and liquidity by building a balanced portfolio of early-stage, growth, and secondary fund investments.
Successful concentration isn't just about doubling down on winners. It's equally about avoiding the dispersion of capital and attention. This means resisting the industry bias to automatically do a pro-rata investment in a company just because another VC offered a higher valuation.
Oren Zeev defends his rapid fund deployment by reframing vintage diversification. He argues that for LPs who invest across his successive funds, diversification occurs at the portfolio level over many years. A single fund may be concentrated in one market cycle, but the long-term LP benefits from exposure to multiple vintages.
To maintain maximum flexibility, Oren Zeev explicitly tells his LPs his only rule is that he has "no rules." This prevents him from being boxed in by a rigid strategy, allowing him to make opportunistic investments that might otherwise contradict stated ownership targets or round structures, ultimately benefiting the fund.
To achieve superior returns, Limited Partners should abandon a passive role and adopt a General Partner's proactive mindset. This means actively sourcing opportunities, building a network, and cultivating deep relationships, rather than just waiting for managers to pitch them.
A skilled investor avoided a winning stock because his Limited Partner (LP) base wouldn't tolerate the potential drawdown. This shows that even with strong conviction, a fund's structure and client base can dictate its investment universe, creating opportunities for those with more patient or permanent capital.
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.
While limited partners in venture funds often claim to seek differentiated strategies, in reality, they prefer minor deviations from established models. They want the comfort of the familiar with a slight "alpha" twist, making it difficult for managers with genuinely unconventional approaches to raise institutional capital.
Mega-funds like a16z operate on a different model than smaller VCs. They provide Limited Partners with diversified, almost guaranteed access to every major tech company, prioritizing strong absolute dollar returns over the high multiples sought from smaller, more concentrated funds.
