An institutional client with a defined benefit pension plan is considering implementing a multi-manager structure for their $500 million global equity portfolio. They aim to reduce idiosyncratic manager risk while benefiting from specialized expertise. Which of the following approaches is LEAST likely to align with their primary objective of mitigating manager-specific risk?

Question: An institutional client with a defined benefit pension plan is considering implementing a multi-manager structure for their $500 million global equity portfolio. They aim to reduce idiosyncratic manager risk while benefiting from specialized expertise. Which of the following approaches is LEAST likely to align with their primary objective of mitigating manager-specific risk?

Answer options: ✅ Allocating the entire global equity portfolio to a single, highly concentrated growth equity manager.

• Dividing the portfolio among three small-cap, two large-cap, and two international equity managers with distinct investment styles.
• Utilizing a core-satellite approach, with 70% in a passive global equity ETF and 30% divided among three active specialist managers.
• Employing a 'manager of managers' solution, where an overlay manager selects and monitors several underlying specialist funds.

Correct answer: Allocating the entire global equity portfolio to a single, highly concentrated growth equity manager.

Explanation: Allocating the entire portfolio to a single, highly concentrated growth equity manager would significantly increase idiosyncratic manager risk, directly contradicting the objective of mitigating such risk. A multi-manager structure seeks to diversify manager styles and approaches.