Concentration Risk

Concentration Risk

Concentration Risk Jonathan Poland

Concentration risk refers to the risk that a specific investment or group of investments could pose a threat to the financial stability of an institution or investment portfolio. There are several types of concentration risk that organizations may face, including:

  1. Single issuer risk: The risk that a portfolio is heavily concentrated in securities issued by a single issuer.
  2. Single industry risk: The risk that a portfolio is heavily concentrated in securities from a single industry.
  3. Single geographic region risk: The risk that a portfolio is heavily concentrated in securities from a single geographic region.
  4. Single asset class risk: The risk that a portfolio is heavily concentrated in a single asset class, such as stocks or bonds.
  5. Key man risk: The risk that the performance of a portfolio is heavily dependent on a specific individual, such as a key executive or manager.
  6. Counterparty risk: The risk that a counterparty to a financial transaction will not fulfill their obligations, resulting in financial losses for the institution or portfolio.

Here are a few examples of concentration risk:

  1. A financial institution that has a large percentage of its loans concentrated in a single industry, such as real estate, could face concentration risk if there is a downturn in that industry.
  2. An investment portfolio that is heavily concentrated in a single company’s stock could face concentration risk if the company experiences financial difficulties or a change in market conditions.
  3. A financial institution that has a large percentage of its assets concentrated in a single geographic region could face concentration risk if there is economic instability or political unrest in that region.
  4. An investment portfolio that is heavily concentrated in a single asset class, such as bonds, could face concentration risk if there is a change in market conditions that impacts the value of that asset class.
  5. An organization that relies heavily on a specific individual, such as a key executive, could face concentration risk if that individual leaves the organization or is unable to fulfill their responsibilities.
  6. A financial institution that has a large number of financial transactions with a single counterparty could face concentration risk if the counterparty is unable to fulfill their obligations.
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Business is the lifeblood of progress and you are the driving force regardless of where you fit in the value chain. People drive profit by bringing useful products and services to market. Profit drives progress by allowing the best ideas to emerge and the best investments to win.

This is the cycle of capital that moves the world forward and that’s why I started Key Bridge, a private membership for the pursuit of profit and progress; a platform for building better assets, tackling global challenges, and advancing the greater good.

Key Bridge

People. Profit. Progress.

Business is the lifeblood of progress and you are the driving force regardless of where you fit in the value chain. People drive profit by bringing useful products and services to market. Profit drives progress by allowing the best ideas to emerge and the best investments to win.

This is the cycle of capital that moves the world forward and that’s why I started Key Bridge, a private membership for the pursuit of profit and progress; a platform for building better assets, tackling global challenges, and advancing the greater good.