Beta's Impact on Fundraising

Equity market returns are essentially free (ETFs cost a few basis points). This has driven the passive revolution to where it now makes up more than 50% of the market, according to ICI’s March 2026 survey. It’s also why allocators are increasingly unwilling to pay for the beta in a manager’s portfolio.

Consider a fund running 40% net long that returned 12% in a market that rose 10%. Roughly a third of that is commonly attributed to beta exposure (40% net * 10% market return = 4%). Under conventional structures, the allocator pays an incentive rate on all 12%. This has been the norm since the Jones model was created over 70 years ago. Many allocators are no longer willing to pay for beta, and this is a major reason why the fundamental long/short community is facing stronger capital-raising headwinds.

The managers we work with feel this. Strong results aren’t leading to capital inflows. Allocators are simply less willing to pay for traditional fee structures.

The solution is a fee structure that isolates the alpha. The alpha calculation can be as simple as returns adjusted for beta or as complex as the returns adjusted for a factor model. Either way, the managers move closer to what allocators want. Isolate their skill, stock picking, and remove the easy-to-replicate market and factor exposure.

It is also, more or less, why CenterBook Partners exists. We started it in 2021 because the data kept showing good research leaking away before it reached the return. CenterBook is designed to reduce market and factor exposure and better capture the value created through stock selection.

None of this makes this environment easier. But the ingredients are all there inside a manager’s portfolio. A process you can demonstrate and compensation directly tied to skill.

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