Touzani Letters · No. 3
How to Evaluate an Emerging Fund Manager
Mourad Touzani, Founder & Portfolio Manager · June 9, 2026 · 7 min read
A shorter track record changes what evidence is available. It does not change what an allocator should demand. Every manager with fifteen years of history once had two, and the allocators who backed strong managers early were not guessing. They were reading different evidence, because the evidence that exists in year two is not the evidence that exists in year fifteen.
Performance history is not statistically meaningful yet, so stop treating it that way
A two or three year return series cannot separate skill from a favorable market regime. Both produce the same chart. Allocators who lean on early performance numbers as the primary evidence are measuring noise and calling it signal. The honest response is not to ignore an emerging manager's numbers. It is to stop asking them to carry weight they cannot bear, and to look elsewhere for the evidence that discriminates between skill and luck.
A written, testable process
A manager who can describe their process only in retrospect, explaining after the fact why each position worked, has not shown you a process. A manager who can produce a written framework, applied the same way before results were known, gives an allocator something a short track record cannot: a way to check whether future decisions follow the stated logic or drift toward whatever has recently worked. Ask for the framework before asking about returns. The framework is what will still be operating in year ten.
How the manager behaved in a real drawdown, even a small one
Every manager has had at least one position go against them, regardless of how young the fund is. That single episode carries more diagnostic value than months of a rising portfolio. Ask what the position was, what the manager's own downside case had said before entry, and whether the actual loss matched, exceeded, or blew through that case. A manager who underwrote the downside correctly and exited near their own pre-defined threshold has demonstrated the discipline a longer track record would otherwise take years to reveal.
Alignment of the manager's own capital
A manager investing a meaningful share of their own net worth alongside client capital has a different relationship with a losing position than one who does not. This is not a formality to check off. Ask what fraction of the manager's investable net worth sits in the fund, not just whether they invested something. A token commitment and a genuine one look identical on a marketing deck and very different on a personal balance sheet.
Independent operational infrastructure from day one
A newer manager has every reason to run operations lean. Independent custody, a third-party administrator, and an auditor unaffiliated with the manager are not expenses to defer until the fund is larger. They are the check that exists precisely because an allocator cannot verify a manager's numbers directly. A manager who self-administers valuation "for now, until we scale" is asking an allocator to trust the one party diligence exists to check.
What this looks like from where we sit
We wrote the Manager Due Diligence Guide as a structured checklist covering these areas in more depth, including fee alignment and concentration. This letter is the shorter version of the same argument: a young manager should be judged on process, drawdown behavior, alignment, and operational controls, since those are the things a short history cannot fake and a long one does not automatically fix.
This article is general commentary on manager due diligence and does not constitute an offer, solicitation, personalized investment advice, or a recommendation to buy or sell any security, and it does not describe Touzani Capital specifically. See the disclosures page for the firm's full disclosures.