Chris MihosWhy 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.
What is operational friction in fund management?
It’s the time, cost and risk created when a fund’s operations rely on manual steps, such as exporting balances, reconciling spreadsheets, recalculating fees and rebuilding reports. It slows a small team down, introduces errors and can raise concerns in operational due diligence.
How can fund managers reduce operational friction?
By connecting data sources directly, so balances flow from the trading venue and custodian into an independently calculated NAV, and fees and reporting are generated from that same reconciled data without anyone retyping figures.
Why does operational friction matter to allocators?
Because it shows up as late or inconsistent reporting, fee errors and key-person dependence, all of which operational due diligence looks for. Allocators commit to a small share of the managers they meet, so operational doubts can easily decide the outcome.
What is NAV in a fund?
Net asset value is the total value of a fund’s holdings minus its liabilities, usually expressed per share. It’s the basis for management and performance fees, for pricing subscriptions and redemptions, and for the performance figures shown to allocators.
Why should NAV be calculated independently?
Because the manager’s fees depend on it, which creates a conflict of interest. Independent calculation by a third-party administrator removes that conflict and is a standard expectation in institutional due diligence. Many SEC enforcement cases have involved NAVs inflated by the party that benefited from them.
How often should NAV be reconciled?
Ideally daily. Reconciling NAV inputs against custodian balances every day means errors are caught within a day, before they affect fees, subscriptions, redemptions or reports.
What is a high-water mark?
A high-water mark is the highest value a holder’s capital has reached on which a performance fee has been charged. Under a high-water mark, the manager only earns a performance fee on gains above that level, so holders don’t pay twice for the same performance.
How does a high-water mark work when holders join at different times?
Each holder can have a different high-water mark depending on when they joined and what fees they’ve already paid. Funds handle this through methods such as series accounting or equalisation, or by tracking each holder’s high-water mark individually and applying fee logic to each one.
Can incorrect fee calculations breach regulations?
Yes. In the US, using the wrong formula or inputs to calculate fees can violate the Investment Advisers Act even without any intent to overcharge, and the SEC has brought cases where high-water marks were circumvented to collect fees.
Why should fund fees be automated?
Because fees involve several calculations for every holder in every period, including management fees on NAV, performance fees against individual high-water marks and introducer shares. Manual calculation creates errors that can breach regulations regardless of intent, while automation applies the same rules consistently and makes fees easier to show to allocators.
What fees do allocators expect to see disclosed?
Typically the management fee, the performance fee and how it’s measured, any high-water mark and crystallisation terms, fund expenses, platform or infrastructure fees, and any introducer or placement fees, including who pays them.
Can a fee calculation error be a regulatory breach?
Yes. In the US, incorrect fee calculations can violate the Investment Advisers Act even without intent, and fees and conflicts of interest remain a focus of SEC examinations.
How should fund managers manage allocator relationships?
By tracking where each allocator is in the process, such as who has opened materials, started due diligence or gone quiet, so follow-ups are timely and relevant. Good systems respect allocator privacy by showing activity without identifying allocators until they choose to make contact.
What share of managers do allocators fund?
According to Barclays’ H2 2026 Hedge Fund Outlook, a survey of 340 allocators, allocators commit capital to roughly 5% of the managers they meet.
Why do fund managers set capacity limits?
Because many strategies perform worse beyond a certain size, and managers may want to control the type, size and jurisdiction of holders they accept. Clear capacity controls also signal to allocators that the manager is managing for the strategy rather than for assets.
What should a hedge fund factsheet include for allocators?
Returns over several periods, drawdowns and recovery times, volatility, exposure and leverage, the length of the track record, and the fund’s terms, including fees, liquidity and capacity. Ideally each figure also shows its source, such as whether it was reported by the manager or verified by an independent administrator.
Why automate factsheets?
Because automated factsheets arrive consistently, match the NAV and fee calculations, and can label the source of every figure. That removes the inconsistencies that raise questions in due diligence and signals that the operation is well run.
What is data provenance in a factsheet?
It’s a label showing where each figure came from, for example self-reported by the manager, observed directly from a trading venue, or verified by an independent administrator, so allocators can judge how much weight to give it.
How should fund managers answer custody questions in due diligence?
By showing that assets are held with an independent institutional custodian, that the manager can trade but not move assets, that signing requires several people with on-device verification, and ideally that the allocator can verify custody directly rather than relying on the manager’s word.
What is off-exchange settlement?
It’s an arrangement in which a manager’s assets stay with an independent custodian while the exchange shows a mirrored balance to trade against, with gains and losses settled periodically. The assets don’t sit in the exchange’s own wallets.
What happened in the Binance hack?
On 29 October 2026, attackers attributed to North Korea’s TraderTraitor group compromised Binance’s hot wallet signing infrastructure and took about $6.3 billion across ten blockchains in roughly twenty minutes. Binance said it would cover customer losses from its own funds.
What does MakeBanc do for fund managers?
MakeBanc is infrastructure that independent managers plug into. Managers keep their venue, tools and book and connect a read-only key, while custody with an institutional custodian, NAV calculated by a third-party administrator and reconciled daily, fee and high-water mark logic, source-labelled factsheets and lead management run underneath. MakeBanc does not provide investment advice, custody services or banking services, and does not select, endorse or recommend managers.