Alex ZonneveldMost of what decides whether an allocator commits has very little to do with the trades, and a great deal to do with everything that happens around them.
Allocators commit capital to only a small share of the managers they meet, around 5% according to Barclays’ latest hedge fund outlook, and the reasons they say no are increasingly operational rather than about performance. A strong track record gets a manager into the room, but what keeps them there is evidence that the NAV is calculated independently, that fees and high-water marks are applied correctly for every holder, that reporting arrives on time with numbers that trace back to a source, and that the custody arrangements would survive a failure at an exchange. For an emerging manager, the back office has stopped being a cost centre in the background. It has become part of the pitch, and it’s the part that most clearly signals whether the team can be trusted with someone else’s capital.
Running a fund is mostly not trading
Anyone who has launched a strategy knows how much of the week goes on things that have nothing to do with the strategy itself. There are reconciliations to run, NAV packs to check, fee calculations to verify, factsheets to update, allocator questions to answer and due diligence questionnaires that run to hundreds of questions, and every one of them takes time away from the work the manager is actually good at. That’s not a sign of poor organisation. It’s simply what running a fund involves when the infrastructure underneath it was designed for much larger firms with dedicated operations teams.
The pressure on smaller managers is also growing. HFR counted 166 new hedge funds in the first quarter of 2026 and 129 liquidations, the most closures in a quarter since 2024, and launches then fell by around 40% in the second quarter. HFR’s own commentary described a more difficult environment for new and emerging managers, with allocators continuing to favour larger and more established firms. Part of what those larger firms offer is operational certainty, and that’s something a smaller manager can now provide without hiring a full operations team, as long as the infrastructure does the work.
Why allocators look at operations so closely
There’s a long-standing finding in the industry, going back to a Capco study of 100 hedge fund failures, that around half of fund failures stem from operational problems rather than from trading losses. Allocators have taken that lesson to heart, and many say they’ve deepened their operational due diligence over the past year. The October 2026 theft of about $6.3 billion from Binance’s hot wallets has only sharpened the focus, because every allocator considering an onchain strategy now wants to know exactly where the assets sit while the manager is trading.
What allocators are really testing in operational due diligence is whether the numbers they’re shown can be trusted and whether the structure would protect them if something went wrong. That comes down to a handful of things: who holds the assets and who can move them, who calculates the NAV, how fees and high-water marks are applied, how quickly and consistently reporting arrives, and whether the manager can answer questions with evidence rather than reassurance.
The six things that carry the most weight
Over the rest of this series we look at each of these in turn. The first is operational friction, the accumulated time and error that comes from running a fund across spreadsheets, emails and disconnected systems, which we cover in The hidden cost of operational friction. The second is NAV, and why an independently calculated, daily reconciled NAV changes the conversation with allocators, which is the subject of Calculating NAV correctly.
The third is high-water mark accuracy, which sounds like a technicality until a holder who joined at a different time asks why their fee differs from someone else’s, and which we cover in Getting the high-water mark right for every holder. The fourth is fee automation, because fee errors carry regulatory consequences regardless of intent, as we explain in Why fee calculation should be automated.
The fifth is lead management, the work of knowing which allocators are engaged, which have gone quiet and which are ready to talk, covered in Managing allocator interest without a CRM team. The sixth is reporting, and in particular automated factsheets in which every number shows where it came from, which we explore in Automated factsheets and the confidence they project. Alongside these, we look at why custody has become one of the first questions in any due diligence process in Custody is now the first due diligence question.
Infrastructure that carries the load
The common thread is that none of this needs to be done by hand anymore, and none of it should depend on the manager’s own word. When assets are held with an institutional custodian, balances are read directly from the trading venue, NAV is calculated by a third-party administrator and reconciled daily, fees and high-water marks are enforced by logic that applies the same rules to every holder, and reports are generated from the same verified data, the manager is freed to concentrate on the strategy. Meanwhile the allocator can see for themselves that the operation is sound.
That combination matters more than it might seem. An allocator who can check the custody, trace each number to its source and see fees applied consistently doesn’t need to take the manager’s word for any of it, which shortens due diligence and changes the tone of the conversation. It also projects something that’s hard to fake, which is a team that has its house in order.
How MakeBanc supports managers
MakeBanc is infrastructure that managers plug into, not a firm they report to. You keep your venue, your tools and your book, connect a read-only key, and the operational layer runs underneath. Assets sit with an institutional custodian, and you can trade them but never move them, which is exactly what allocators want to see. NAV is calculated by a third-party administrator from sub-account and custody balances and reconciled daily. High-water marks and performance fees are attributes of your strategy, applied by smart contract logic in the same way for every holder. Factsheets are generated from verified data, with every figure labelled as self-reported, observed or verified.
You also stay in control of who you work with. You can set capacity, minimums and the jurisdictions you accept, close the strategy when you choose, see which allocators have opened your materials, and give a placement agent scoped rights to introduce their own network without either side’s clients being shown to anyone else. MakeBanc doesn’t select, endorse or rank managers, and it doesn’t introduce capital. It provides the infrastructure, and the relationships remain yours.
Frequently asked questions
Why does operational infrastructure matter for emerging fund managers? Because allocators commit to only a small share of the managers they meet, and operational weaknesses are a common reason to say no. Independent NAV, accurate fees and high-water marks, consistent reporting and sound custody give allocators evidence that the operation can be trusted, which shortens due diligence and supports the case made by performance.
What do allocators check in operational due diligence? They typically check who holds the assets and who can move them, who calculates the NAV and how it’s reconciled, how fees and high-water marks are applied to each holder, the quality and timeliness of reporting, compliance arrangements and the firm’s service providers.
How many hedge funds launched and closed in 2026? HFR counted 166 launches and 129 liquidations in the first quarter of 2026, after which launches fell by about 40% in the second quarter and liquidations fell to around 70. HFR described a harder capital-raising environment for new and emerging managers.
Sources
- CBH, 2026 midyear hedge fund industry update (Barclays H2 2026 Hedge Fund Outlook)
- HFR, Hedge fund launches, liquidations rise to begin volatile 2026
- Hedgeweek, Hedge fund launches drop 40% in Q2 as liquidations nearly halve
- Hedgeweek, Study shows operational risk key factor in hedge fund failures
- TRM Labs, North Korea steals USD 6.36 billion from Binance, October 2026
MakeBanc is a technology platform that provides infrastructure to independent asset managers and connects them with investors. MakeBanc does not provide investment advice, custody services or banking services, and does not select, endorse or recommend any manager or strategy.