[Zygote]

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so for an individual, it is correct to say that to minimize risk, you must give up returns...but if the returns you give up are lower than the cost of the higher risk (given your "risk aversion parameter), then that risk reduction is clearly worthwhile. you should, obviously then, reduce risk until the marginal changes of the risk/return tradeoff are equal (where the next unit of risk reduction costs too much in terms of sacrificed returns relative to your risk aversion parameter).

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I agree with this entirely.

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for an institutional investor, however, that has access to hedge funds to run leveraged portfolios for them for 50bps in total fees at SRs of .70 and then simply pick the level of risk they want, diversification is clearly, no question better.

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What i dont understand is why dont they only stick to the less volatile leveraged assets if that's the case? Why doesnt all their money just go there?