Style Drift
Style drift is when a manager’s portfolio or behavior deviates from the stated mandate, changing risk and return characteristics.
Definition
Style drift occurs when a strategy gradually moves away from its original focus—by asset type, sector exposure, risk profile, geography, leverage, or liquidity. Drift can be intentional (expanding opportunity set) or accidental (chasing returns), but it increases uncertainty for allocators who sized the strategy based on expected behavior. Allocator Context Allocators are mandate-driven. They allocate to a strategy for a specific portfolio role, and style drift can break that role by increasing correlation, changing drawdown behavior, or violating policy constraints. Institutions track drift via holdings analysis, risk exposures, and manager communications. Decision Authority Style drift can trigger watchlist placement, exposure reductions, and non-re-up decisions. In some cases, it can lead to committee intervention if the strategy no longer fits the mandate under which it was approved. Why It Matters for Fundraising Consistency is fundraising equity. Managers that demonstrate stable behavior and clear boundaries are easier to re-up and to reference among LP networks. Drift creates skepticism and slows new allocations. Key Takeaways Drift changes what the allocator bought Breaks portfolio role and policy fit Drives redemption, sizing cuts, and re-up risk Clear boundaries improve trust and closes