Alex ZonneveldFriction rarely shows up as a single large failure; it shows up as a hundred small delays, a few quiet errors and an allocator who decides to wait another quarter.
Operational friction is the time and risk that build up whenever a fund’s operations depend on people moving data between systems by hand: exporting balances from a venue, pasting them into a spreadsheet, sending them to an administrator, checking the NAV that comes back, recalculating fees and then rebuilding the factsheet. Each step is small, but together they consume a large share of a small team’s week, introduce errors that can carry regulatory consequences, and create delays that allocators notice. The way to reduce friction is to connect the pieces directly, so that balances flow from the venue and custodian into the NAV, the NAV flows into fees and reporting, and nobody has to retype a number.
Where the friction comes from
Most emerging managers build their operations the way anyone builds something with limited time and money, by connecting whatever tools are available with spreadsheets and email. That works at the start, but each new holder, share class, venue or reporting request adds another manual step, and before long the operation depends on one or two people who know which file to update and in what order.
The friction tends to gather at the handoffs. It appears when trading data has to be exported from a venue and reconciled against a custodian’s records, when an administrator needs inputs in a particular format, when fees have to be calculated separately for holders who joined at different times, and when an allocator asks for a figure that has to be assembled from three different places. None of these is difficult on its own, but every one of them is an opportunity for a delay or a mistake.
What it really costs
The obvious cost is time. Every hour spent reconciling spreadsheets or rebuilding a factsheet is an hour not spent on research, risk or the conversations that bring in capital, and for a team of two or three people that trade-off is felt every week.
The less obvious costs are often larger. Errors in fee calculations can breach the Investment Advisers Act regardless of intent, because the law doesn’t require that a manager meant to overcharge. Late or inconsistent reporting raises questions in due diligence, and allocators commit to only around 5% of the managers they meet, according to Barclays, so it doesn’t take much to tip a decision. And because the operation depends on a few people, it represents key-person risk, which is exactly the kind of thing operational due diligence is designed to uncover.
Removing friction without building a back office
The answer for most managers isn’t to hire an operations team, which is expensive and slow, but to adopt infrastructure in which the handoffs happen automatically. When a read-only connection takes balances directly from the venue, and custody balances come directly from the custodian, there’s nothing to export and nothing to retype. When an independent administrator calculates the NAV from those same balances and reconciles them daily, discrepancies show up within a day rather than at month end. And when fees, high-water marks and reports are all generated from that reconciled data, the same number appears everywhere, every time.
This changes the manager’s role from assembling the operation to overseeing it, which is a much better use of a small team’s time, and it changes what an allocator sees from a collection of documents to a single, consistent picture of the fund.
How MakeBanc reduces friction
MakeBanc is designed so that you don’t have to change how you trade. You keep your venue, your tools and your book, and connect a read-only key. Custody, reconciliation, NAV and reporting then run underneath, with balances taken from your sub-account and the custodian, NAV calculated by a third-party administrator and reconciled daily, fees and high-water marks applied by smart contract logic, and factsheets generated from the same verified data. You trade, and the rest of the operation follows from the numbers rather than from a spreadsheet.
MakeBanc provides infrastructure to independent managers. It doesn’t manage, oversee or endorse your strategy, and your relationships with allocators remain your own.
Frequently asked questions
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.
Sources
- CBH, 2026 midyear hedge fund industry update (Barclays H2 2026 Hedge Fund Outlook)
- Hedge Fund Law Report, Fund managers may be liable for incorrect fee calculations, regardless of intent
- Hedgeweek, Operational due diligence considerations
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.