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Diversification Driving Growth of Multi-Strategy Funds

Multi-strategy hedge funds have seen a marked rise in popularity recently, driven by the success of several top-tier entities, especially those from the broad US ‘multi-strategy’ platforms. Statistics show that this growing interest isn’t just anecdotal but is firmly backed by current investment data. As more and more investors are looking for new opportunities, these funds are solidifying their position as a preferred investment choice for many.


The Unique Appeal of Multi-Strategy Funds

2022 was a challenging year for many hedge fund strategies, with investors withdrawing a whopping $111 billion from the broader hedge fund universe. Yet, multi-strategy emerged as a favorite, being one of only two strategies that attracted inflows, drawing in nearly $6 billion. Reviewing the AUM of multi-strategy hedge funds, there were approximately $300 billion between 2017 and 2020, but doubled thereafter to just under $600 billion.  Such statistics have led to these funds being dubbed by some as “the new, superior fund-of-funds.”

AUM growth of multi-strategy hedge funds
The assets under management of multi-strategy hedge funds based on data from BarclayHedge

There are currently over 1,000 managers who identify under the ‘multi-strategy’ banner. This classification is not without merit. Multi-strategy hedge funds are particularly attractive for several reasons:

  • Risk-Adjusted Returns: These funds typically aim to maximize risk-adjusted returns. A standout feature is their consistent return stream that doesn’t resonate with the traditional market movements. This ensures they remain resilient, even during market stress periods.
  • Operational Standards: Multi-strategy funds are often characterised by their volatility, usually ranging in the mid-to-high single digits, with a goal for a Sharpe ratio greater than 1.
  • Diversification Benefits: These funds present a diversified hedge fund exposure, effectively mitigating the resource-intensive nature of single manager allocations.
  • Dynamic Asset Allocation: They foster a highly dynamic approach when it comes to asset allocation and risk capital exposure, giving them an edge in performance and adaptability.

To quantify their success, since the year 2000, the Eurekahedge Multi-Strategy Hedge Fund Index has been impressive, delivering a commendable 8.3% on an annualised basis. Such levels of return are often beyond the aspirations of even the most aggressive investor strategic asset allocation plans.

Eurkahedge Multi-Strategy Index


The Challenge of Access, Minimums, and Liquidity

However, despite their promising features, several hurdles remain. The most successful managers in this arena have closed their funds off to subscription from new investors.  Capacity for individual investors is scared and can only be tabbed via feeders that got in early as the fund’s GP.

Even if a feeder with capacity is found, the popularity and demand for these funds afforded them the right to demand a high minimum investment, usually around US$5-$10 million per ticket.  Even for high-net-worth individuals, this entry point can be dissuasive.

And finally, there is the matter of liquidity.  Like most hedge funds, many multi-strategy funds process a medium to long term investment horizon with fund managers imposing back-end load between the first 12- 36 months after subscription acceptance, depending on the fund manager.


Making multi-strategy funds more accessible

This is where FundKernel offers a tangible solution for wealth managers.   We carry numerous high-performing multi-strategy funds that are open-ended with quarterly liquidity. This repertoire is not random; it’s meticulously selected by our advanced product curation engine sifted from thousands of funds.

Moreover, it’s worth noting that FundKernel’s premier multi-strategy fund consistently outperforms the standard multi-strategy benchmarks. More importantly, it showcases a clear independence from market correlation, underscoring the inherent value FundKernel brings to the table.

Performance of FundKernel Multi-Strategy Fund
Performance deltas between one of FundKernel’s curated Multi-Strategy fund vs HFRI EH Multi-Strategy Index

While multi-strategy hedge funds are undeniably gaining traction and present a bevy of advantages, individual investors wanting to get involved will be faced with numerous barriers.  With platforms like FundKernel, wealth managers can circumvent these obstructions, ensuring their clients reap the best the market has to offer.

Log in or register an account with us to peruse the comprehensive range of private market funds we offer, specially designed to meet the demands of contemporary investment professionals.

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