Style Drift
Style drift is when a manager’s actual investments deviate materially from their stated strategy, mandate, or risk profile over time.
Allocator relevance: Breaks portfolio construction—drift creates hidden exposures, undermines diversification, and can violate policy constraints.
Expanded Definition
Drift can be intentional (chasing performance, fundraising incentives) or structural (opportunity set changes, team turnover). Examples: a venture fund moving later-stage to deploy faster, a credit fund weakening covenants to maintain yield, or a hedge fund increasing leverage. Drift makes historical track record less predictive and complicates monitoring.
Allocators manage drift via mandate clarity, monitoring, and governance protections.
How It Works in Practice
Allocators track portfolio composition changes, sizing patterns, sector exposure, leverage, and deal types. Drift often shows up first in language (“opportunistic,” “flexible”), then in portfolio reality.
Decision Authority and Governance
Governance tools include mandate restrictions in the LPA/PPM, reporting requirements, and review processes. LPAC can matter when drift intersects with conflicts or extensions.
Common Misconceptions
- Drift is always bad (some controlled evolution is rational).
- Drift is obvious early.
- Past performance fully captures drift risk.
Key Takeaways
- Drift undermines your portfolio design.
- Monitoring must track actual behavior, not narratives.
- Team turnover and incentives are drift predictors.