Terms
Managers waste a great deal of time on allocators whose constraints were never going to fit. In the interest of everyone's calendar, here is how we think about size, liquidity and terms before the first meeting.
Initial allocations and scaling
Our typical first allocation is deliberately modest relative to our eventual intended position. We prefer to establish a relationship, observe the manager through a full reporting cycle and at least one uncomfortable market, and then scale. A first ticket that is small is not a judgement on quality; it is how we manage the risk that our own diligence missed something.
Scaling decisions are made against capacity rather than performance alone. We would rather be a meaningful investor in a strategy running well inside its capacity than a small investor in one that has already taken more assets than the opportunity supports.
Concentration limits
We cap our holding as a proportion of a manager's total assets, and we cap any single manager as a proportion of our own portfolio. The first limit protects the manager from becoming dependent on us — a dependency that distorts their behaviour and ours. The second protects our investors. Where a manager is early-stage and our capital would represent an outsized share of the fund, we discuss that openly and usually structure around it.
Liquidity
We need dealing terms that correspond to the underlying assets. For liquid strategies we expect monthly or quarterly dealing with reasonable notice. For strategies holding genuinely illiquid assets we can accept lock-ups and extended notice periods, provided the terms are honest about what is being held and the fund is not simultaneously offering better liquidity to other investors on the same assets.
What we will not do is accept short-dated liquidity on long-dated assets and assume we will be first out of the door. Gates, suspensions and side pockets are read carefully, and we prefer provisions that are clearly defined and applied pro rata over discretionary powers with vague triggers.
Fees
We are not fee-averse; we are alignment-focused. A high performance fee on genuine outperformance is easier for us to justify than a high management fee that pays the manager regardless. Where we discuss terms, the conversation usually covers hurdle rates appropriate to the strategy's risk-free alternative, high-water marks that do not reset, crystallisation frequency, and whether early or larger investors receive founder terms.
Most-favoured-nation provisions matter to us less as a negotiating weapon than as a signal: a manager who cannot tell us the range of terms in their book is running an investor base that will be difficult to manage in stress.
Structures we can use
We invest through commingled funds, separately managed accounts, managed account platforms, and dedicated fund-of-one structures. The choice is driven by size, transparency requirements and the operational findings from diligence. Managed accounts are common for us where the strategy is liquid, the manager is early-stage, or we need position-level visibility to manage portfolio-wide risk.
What to send first
A factsheet, a monthly return series since inception, a description of the strategy's capacity, the current terms, and the names of the administrator, auditor and prime broker. That is enough for us to give a fast and honest answer about whether it is worth either side's time to continue.