This is a sponsored post provided by PMG Funds.
Diversification is one of the most widely used – and most widely misunderstood – concepts in investment. In commercial property in particular, the assumption that more assets automatically equals less risk has been tested repeatedly through market cycles. The reality is more nuanced: not all diversification delivers the protection investors expect.
New Zealand commercial property fund manager PMG Funds, which has navigated more than three decades of market cycles including the 2008 global financial crisis and the COVID-19 pandemic, offers a useful case study in how diversification is applied with intent – and where it can fall short when it isn’t.
The diversification differentiator
The purpose of diversification is to reduce unrewarded risk, not to dilute returns by simply adding more assets to a portfolio. Done well, it strengthens resilience across cycles. Done poorly, it can increase complexity, cost and concentration without offering meaningful protection.
PMG shifted from standalone syndications to a diversified managed funds model in 2014 – a decision shaped directly by those earlier downturns.
“Our experience has solidified our belief that quality, well-managed commercial property remains a robust long-term investment,” says PMG CEO Scott McKenzie. “But sector performances fluctuate with trends and external pressures, and a single-asset or single-sector exposure leaves investors carrying the full weight of that volatility.”
Unlike syndicates that often concentrate on a single property, diversified funds allow for a more dynamic approach. “In recent downturns, investors in diversified funds faced less risk from any one sector or region underperforming,” McKenzie says. “The impact of a single tenant default is absorbed across the portfolio rather than felt by every investor at full force.”
Strategic diversification and where it can fall short
Effective diversification in commercial property tends to share a few characteristics:
- Genuine spread of risk: assets that respond differently to economic conditions, so a downturn in one sector or region doesn’t drag the whole portfolio down.
- Quality maintained at every level: each property earns its place on its own merits, not because it ticks a diversification box.
- Sector, geographic and tenant balance: exposure spread across industries, locations and tenant covenants that aren’t all moving in lockstep.
- Discipline within expertise: assets sit within sectors and markets the manager understands deeply and can actively manage.
- Scale that supports active management: large enough to absorb shocks, focused enough that every asset is being worked hard.
The opposite (diversification for its own sake) can be harder to spot, but tends to show up in a few familiar ways:
- Spreading too thin: owning many assets that all behave the same way under stress, creating the appearance of diversification without the protection.
- Diluting quality to add variety: taking on weaker assets, tenants or locations purely to broaden the portfolio.
- Drifting outside core expertise: moving into sectors or regions where the manager lacks the depth to add value or manage risk.
- Concentration in disguise: multiple properties that look different on paper but share the same underlying tenant, sector or economic driver.
- Over-diversification: so many holdings that no single asset materially contributes, and active management becomes difficult.
Diversification in practice
PMG’s retail funds portfolio spans from Whangārei to Invercargill, including industrial, large-format retail, office and childcare properties. The geographic and sectoral spread is deliberately aimed at strengthening resilience rather than inflating the asset count.
“We aim to acquire and enhance high-quality assets that attract tenants by offering added value, such as sustainability enhancements,” McKenzie says. “Every property has to earn its place; we’d rather hold fewer, better assets than chase scale for the sake of it.”
That discipline extends to how PMG balances sector exposure, selects tenants across different industries, and weighs property size and sub-sector mix within each fund – testing each decision against whether it genuinely lowers risk or simply adds to the portfolio.
For investors weighing up commercial property exposure, the question isn’t whether a fund is diversified – almost all of them claim to be. The more useful question is how it’s diversified, and whether that diversification reflects deliberate strategy or simply scale.
As PMG’s experience suggests, the difference shows up most clearly when markets turn.
Disclaimer: The information in this blog is general and current as of June 2026. It is not intended as regulated financial advice under the Financial Markets Conduct Act 2013 and does not consider your specific circumstances. PMG does not provide financial advice. Please consult a licensed financial advisor before making investment decisions.
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