Red Flags for Hedge Fund Allocators

In today’s competitive hedge fund environment, especially for emerging managers, standing out is more critical than ever. Strong performance remains a baseline expectation, but hedge fund allocators are increasingly seeking more than returns, they want differentiated strategies, transparent communication, and genuine, long-term relationships with the managers they back.

In a recent conversation with Tiffany Besnard, Head of Hedge Funds at 26 Degrees Global Markets, Stefan Nilsson, Founder of the Hedge Funds Club and CIO & Co-Founder of Terrasias Capital Ltd, shared his candid perspectives on what hedge fund allocators truly value, common missteps managers make, and how funds can better position themselves to attract sustainable capital.

Differentiation Outweighs Performance

One of the biggest misconceptions among fund managers, Stefan explains, is that impressive numbers alone will not attract investors.

“If you sell on numbers, you die by numbers,” he says. “Good performance is expected. Numbers only matter once an investor is already interested in you.”

Many managers, particularly in Asia, rely on emails or pitch materials that focus almost exclusively on returns. While performance is necessary, it is rarely sufficient. Hedge fund allocators are often already invested in diversified portfolios, and incremental outperformance rarely justifies replacing or adding new managers. Differentiation whether through a unique investment approach, a niche strategy, or an innovative perspective becomes the key to catching a hedge fund allocator’s attention.

“If you’re just saying you’re a little better than existing managers, that’s not enough for an allocator to switch or add,” Stefan emphasizes. “You have to be different.”

The Marketing Mistakes Managers Keep Making

Stefan highlights a recurring issue: poor communication and generic outreach. Many managers send unsolicited monthly reports or performance summaries without context, personalisation, or a clear explanation of what makes their fund unique. “I get emails that say, ‘Please find our monthly report attached.’ I think, who are you? Why would I open this?”

He encourages managers to put their strategy, approach, and unique value proposition front and center. Even a simple subject line that explains the fund’s strategy and points of differentiation can dramatically improve engagement. Honesty, particularly about setbacks or negative performance, resonates even more with hedge fund allocators. By framing communications around insight rather than just results, managers build credibility and trust, which can ultimately influence allocation decisions. “When a manager writes, ‘We were down 5% last month and here’s why,’ I want to read that. It shows they’re communicating openly and thoughtfully.”

Understanding Hedge Fund Allocators Requires Listening, Not Assumptions

Another common pitfall, Stefan notes, is making too many assumptions about a hedge fund allocator’s portfolio or investment preferences. “Managers often say, ‘We know how to work with family offices.’ No, you don’t. Every family office is different,” he explains. “Unless it’s a public pension fund, you don’t know their holdings.”

Instead, managers should focus on listening, asking questions, and tailoring their approach. Understanding investors’ needs and objectives before pitching ensures your message resonates and avoids the pitfalls of generic outreach.

Validate Investor Demand Before Launching a Fund

Stefan stresses that many managers make the mistake of setting up a fund without first confirming demand. “I’ve seen firms set up offices and hire teams before speaking to investors. Then they launch and realize no one wants to invest. I try to be honest even if it’s not what they want to hear.”

His advice is simple and practical. Engage potential hedge fund allocators early, test your investment thesis and fund structure, understand who your target investors are and adjust your approach or reconsider launching by taking a disciplined, investor-first approach, managers can save time, resources, and reputational risk while increasing the likelihood of successful capital raising. At 26 Degrees Global Markets, we continue to work with both hedge fund allocators and managers to foster these meaningful connections, helping hedge funds navigate the evolving investment landscape successfully.

If you’re a fund manager or hedge fund allocator and would like to find out more, explore our Fund Manager and Allocator pages, or get in contact with our team: