.svg)
What Allocators Ask For That Most New Funds Can't Show
Most new funds get rejected on process, not performance. Our data across 300+ managers shows the discipline gap costs ~4% annually. Here's how to close it.
Many allocators reject managers on process. Not performance. Most new funds find this out the hard way. Usually, in the second or third LP meeting, when the question shifts from "what's your thesis" to "walk me through exactly how you sized your three largest positions."
Most managers give a narrative when it should be specific.
The findings from Alpha Theory’s data across the past 14 years and a sample of 300+ fundamental managers show that price targets are more predictive of future returns than position sizes. It should be the other way aorund. The skill is there but there is a break down in the handoff from research to portfolio. It is a discipline gap that costs ~4% annually. It's anchoring, loss aversion, the sunk cost of three weeks of analysis on a name that stopped making sense two weeks ago. These are systematic problems, and they can be solved with a systematic solution that leaves a paper trail.
That paper trail is what allocators want when they ask the sizing question. They want evidence that your process is repeatable. Alpha Theory clients are already building it. Every price target update is timestamped. Every scenario change is logged. Every divergence between their OPS and their actual position is recorded. It’s a continuous, auditable record that their process is real and consistent.
What if you had an independent verification?
CenterBook Partners (CBP) is a $1B+ multi-manager fund built on the idea of eliminating the gap between research and portfolio. That gap wasn't random. It was behavioral, it was persistent, and when we stripped out market and factor exposures across 200+ managers, the underlying stock-selection alpha was strong and durable. The signal was there.
What does it mean for the LP meeting? When an allocator asks how you know your process is real, being a CBP Partner Fund means a $1B+ multi-manager evaluated your research quality, your freshness, your OPS alignment, your alpha generation, and decided your signal was worth putting capital behind. That's independent verification from someone whose own returns depend on the quality of your process.
A story of Derek Brown and his launch of Dardanelles Capital is a great example. In 2022, launches were at a decade-low, allocators were skeptical of anything that wasn't a pod spinout, and Derek had only one analyst. He knew the sizing question was coming in every LP meeting, so he decided to have the answer ready before anyone asked it. He built his entire workflow from day one. Price targets on everything, scenarios updated continuously, OPS driving the actual sizing. His numbers ended up speaking for themselves. 99% of gross exposure covered by active targets. Freshness in the top decile of our client base, roughly every 30 days. One analyst, but the process infrastructure of a fund three times the size. Derek shared with us that showing allocators exactly how he sized his three largest positions, with timestamps, made the biggest impact in those meetings. That's a different meeting than the 999 other launches they saw that year.
