Risk in Perspective

This is the second essay in our Insights series. The first explored capital in two states — waiting and working. This essay extends that foundation into risk, comparing entrepreneurial effort with liquid markets, and setting the stage for how we judge illiquid commitments in the quarters ahead.

Risk is not absolute. It is a spectrum. Public markets make that spectrum visible — from sovereign debt down to high yield, each level measured in yield, each step priced by liquidity.

In the CEE and Baltic region, the spectrum is narrower than it seems. Investment grade belongs almost entirely to sovereigns and state-owned companies. A few large private names issue in high yield. Most of the businesses through which our families and partners build their fortunes rarely appear on this scale. A few might qualify at the lowest notches of high yield, but the majority carry risks that sit closer to equity than to debt.

This difference is not small. Running a private company means accepting uncertainty every day — about markets, financing, regulation, and succession. These risks are concentrated, often carried in a single industry or geography, without the cushion of diversification. In comparison, a public high yield bond spreads risk across hundreds of issuers. Defaults occur, but rarely all at once. Even at five to six percent yield to maturity, a high yield index still represents less fragility than the daily rhythm of entrepreneurship.

This perspective matters. Too often, government bonds are taken as the natural benchmark. For CEE entrepreneurs, they are the wrong reference point. The more honest comparison is high yield. The difference is visible in time. At yields near three to four percent, government bonds double capital in eighteen to twenty-four years. At five to six percent, high yield cuts that in half, doubling wealth in twelve to fourteen years. What looks like a small difference in yield is, in reality, a difference of a decade.

And the truth it reveals is counterintuitive: what markets call “high yield” may still be lower risk than the wealth-building engine of a single private business.

That is why illiquid commitments must be judged with care. At Kadoria, when we structure preferred equity in real estate investments, we do so against the backdrop of liquid high yield. These projects cannot be sold tomorrow. They require patience and trust. But they are built with clarity: priority in the capital stack, alignment of interest, and returns designed to exceed what liquidity already offers.

The balance is clear. Concentrated entrepreneurial risk builds wealth. Diversified allocation preserves it. Illiquidity earns its place only when it clears the hurdle that liquid markets already set. If it cannot, its structure must be questioned.

At Kadoria, this discipline frames every commitment. Entrepreneurship will always carry the highest risk. Public markets give perspective. Preferred equity provides the bridge — illiquid, patient, and built to endure.

October will bring our first quarterly Insights, combining results with reflection. If you wish to follow along, you may subscribe below.