In this article, we examined the portfolio optimization problem when a portfolio manager manages a multi-manager program or fund of funds with style constraints (or asset allocation). The portfolio manager’s job is to maximize the portfolio excess return over a benchmark subject to given tracking errors. We show that the performance of the style-constrained portfolio is determined by the active management skill of the portfolio manager. Specifically, the active management skill is measured by the portfolio manager’s ability to identify funds with positive alpha. Thus, the key to maximizing portfolio return is for an investor to choose a portfolio manager with active alpha–seeking skill. We further showed that in the case when the style factors are market indices,
the fund alpha is portable in the sense that the fund weights are totally determined by the fund alpha and independent of the style loadings. The results presented in this article will not only help investors set up optimal style constraints, but also will provide portfolio managers a portfolio optimization framework to manage a multimanager program or fund of funds.