Limited Partners, much like VCs searching for outlier founders, are often looking for fund managers who are "a little off." They value investors who think differently and don't follow the consensus, as this non-traditional approach is seen as the path to generating outsized returns.

During due diligence, it's crucial to look beyond returns. Top allocators analyze a manager's decision-making process, not just the outcome. They penalize managers who were “right for the wrong reasons” (luck) and give credit to those who were “wrong for the right reasons” (good process, bad luck).

A common mistake for emerging managers is pitching LPs solely on the potential for huge returns. Institutional LPs are often more concerned with how a fund's specific strategy, size, and focus align with their overall portfolio construction. Demonstrating a clear, disciplined strategy is more compelling than promising an 8x return.

Unlike typical investors who chase performance, sophisticated institutions often rebalance into managed futures when the strategy is in a drawdown. They take profits after strong years (like 2022) and re-allocate capital during weak periods to maintain strategic exposure.

Many LPs focus solely on backing the 'best people.' However, a manager's chosen strategy and market (the 'neighborhood') is a more critical determinant of success. A brilliant manager playing a difficult game may underperform a good manager in a structurally advantaged area.

Limited Partners (LPs) value fund managers who are willing to listen and internalize market feedback, even if they ultimately follow their own strategy. This openness is a key positive signal, while a refusal to listen is a major red flag that often appears early in the relationship.

Judging investment skill requires observing performance through both bull and bear markets. A fixed period, like 5 or 10 years, can be misleading if it only captures one type of environment, often rewarding mere risk tolerance rather than genuine ability.

Investors seasoned in crypto's extreme volatility and market cycles develop a unique psychological resilience. This experience makes them better equipped to handle the comparatively minor fluctuations of traditional stock markets, allowing them to remain rational and stomach risks that would paralyze others.

The predictable four-year crypto cycle isn't random. It's explained by two parallel forces: a macro trend tracking global M2 money supply fluctuations, and a micro, commodity-like pattern of supply shocks, speculative bubbles, and subsequent crashes.