For decades, trustees defined diversification by reference to public markets alone, such as listed equities, public credit and government securities. However, that framework no longer reflects how the modern economy operates. Today, a substantial share of business formation, growth and capital formation occurs outside public markets. 

A modern trustee’s fiduciary obligation to act prudently requires adapting to change. The Uniform Law Commission promulgated the prudent investor rule for enactment in Uniform Trust Code (UTC) states in 1994. Since that time, most states have enacted some version of the prudent investor rule (even non-UTC states). The prudent investor rule is based on modern portfolio theory, emphasizing reasonable, risk-man…