Mathias S. Kruttli, Phillip J. Monin, and Sumudu W. Watugala | We show that when only a few investors own a substantial portion of a hedge fund’s net asset value, flow volatility increases because investors’ exogenous, idiosyncratic liquidity shocks are not diversified away. Using confidential regulatory filings, we confirm that high investor concentration hedge funds experience more volatile flows. These hedge funds hold more cash and liquid assets, which help absorb large, unexpected outflows. Such funds have to pay a liquidity premium and generate lower risk-adjusted returns. Investor concentration does not affect flow-performance sensitivity. These results are robust to including lock-up and redemption periods, strategy, manager ownership, and other controls.