Allocators run a sourcing and due-diligence process: identify managers, evaluate the strategy and track record, conduct operational due diligence on the fund's structure and controls, negotiate terms and monitor the investment. Larger allocators have dedicated emerging-manager programmes; smaller ones rely on networks, databases and platforms.
For an emerging manager, allocators are the route from a managed-account business to a fund business, since most can only invest through a fund vehicle.