The Single-Family-Office Concentration Problem
Most single-family offices hold one operating company, one property portfolio and one legacy manager relationship — a structure with an implied Herfindahl-Hirschman index closer to a monopoly than a portfolio. The illiquidity premium such families are often paying twice, and what shared infrastructure actually changes.
A single-family office is usually built around a success. The operating company generated the capital, the property portfolio was the first diversification, and the manager relationship came with the liquidity event. Each decision was sensible when it was made. The composite is a concentration profile most of these families would reject immediately if it were presented to them as a proposed allocation.
Measuring it honestly
The Herfindahl-Hirschman index — the sum of squared shares — is a blunt instrument borrowed from competition economics, and it is clarifying here precisely because it is blunt. Applied to a balance sheet dominated by three positions, it produces a number that would describe a monopolised market rather than a diversified portfolio.
The usual objection is that the operating company is not really a position; it is the family's business, understood deeply and managed directly. That is true and it cuts the wrong way. Deep understanding reduces information risk. It does nothing about sector risk, regional risk, key-person risk or the correlation between the operating company's fortunes and the property portfolio that was bought in the same city on the back of the same cash flows.
Correlation the balance sheet does not show
Concentration is frequently worse than the position list suggests, because the exposures share drivers. The business, the local property, the key relationships and often the family's human capital sit in one economy, one regulatory regime and frequently one currency. A single adverse regime change reprices several of them together.
A diversified position list is not a diversified balance sheet if every line answers to the same driver.
Paying the illiquidity premium twice
This is the part that tends to land. An illiquidity premium is compensation for accepting that capital cannot be moved quickly. A family holding an operating company and a property portfolio is already accepting a great deal of illiquidity — structurally, not as an allocation choice.
The second payment is subtler. Because the liquid sleeve is the only part that can actually be moved, it ends up carrying the whole burden of flexibility: held more conservatively than it needs to be, or liquidated first under stress precisely when it is worth least. The family bears illiquidity in the core and pays for liquidity in the sleeve — the same constraint, priced twice.
The remedy is not more liquid assets. It is recognising the illiquidity concentration explicitly, and either sizing the liquid sleeve against a written liability map or reducing the concentration itself.
What shared infrastructure actually changes
A single family office carries fixed costs that a larger institution amortises. Three things change with shared infrastructure, and it is worth being precise about which are real.
- Pooled manager access. Minimums that are prohibitive for one family are reachable for several. This is a genuine structural advantage, not a negotiating one.
- Correlated-risk reporting across members. The ability to see that an intended diversifier is held by several members for the same reason, and therefore diversifies less than it appears.
- Shared operational due diligence. Operational DD is expensive, repetitive and largely identical between families. Sharing the cost raises the standard applied rather than merely lowering the bill.
What shared infrastructure does not do is reduce the concentration in the operating company. That remains a decision only the family can take, and usually the most consequential one on the balance sheet.
The question worth asking
Not "is the portfolio diversified?" — the position list will usually say yes. The better question is: if the operating company's sector had a difficult decade, how much of this balance sheet would be affected, and through how many channels?
Families that can answer precisely are generally managing the risk deliberately. Families that cannot have a concentration they have not yet chosen.