Why diversification fails when liquidity disappears – and why tail hedges only work if convexity is monetised
Diversification is often treated as sufficient protection – designed, monitored, and trusted to hold when markets come under stress.
That assumption breaks down precisely when liquidity disappears.
This CIO brief explains why portfolios built for normal markets repeatedly fail in crises: not because diversification is poorly executed, but because liquidity, not allocation, becomes the binding constraint.
It shows why tail hedges matter only if convexity is converted into cash before decay sets in, why waiting for clarity destroys value, and why authority, triggers, and proceeds discipline must be agreed before markets break.
The focus is not on trading or product selection, but on structure – how governance, market plumbing, and execution under stress determine whether convexity becomes liquidity, or narrative comfort.
Read the CIO brief
When Diversification Fails: How Convexity Becomes Liquidity