I should have been more specific (no pun intended). You should take a closer read of my comment. You've made the same misinterpretation a second time.
Suppose a non-diversified investor, A, owns an asset which has both systemic risk and specific risk, and a diversified investor, B, has the same knowledge as A. In this case, B would be willing to pay a higher price for the asset than A would. A then sells the asset to B and the market becomes efficient. No assets would exist not on the efficient frontier.
Suppose a non-diversified investor, A, owns an asset which has both systemic risk and specific risk, and a diversified investor, B, has the same knowledge as A. In this case, B would be willing to pay a higher price for the asset than A would. A then sells the asset to B and the market becomes efficient. No assets would exist not on the efficient frontier.