Paragon Alpha - Hedge Fund Talent Business’ Post

Series: Insights on Mutli-Strategy Fund of Hedge fund management. Post 1: Diversification is a key...but As the Chief Strategist of our fund of hedge funds, AMP, I cannot stress enough the critical importance of diversification. Diversification is the cornerstone of managing a multi-strategy fund of hedge funds. By spreading investments across various strategies, sectors, and asset classes, we can significantly mitigate risks and enhance returns. For instance, by allocating 20% to equity long/short strategies, 30% to global macro, 25% to fixed income arbitrage, and the remaining 25% to event-driven strategies, we ensure that our portfolio is not overly concentrated in one area, which helps us avoid significant losses and provides a more balanced risk-reward profile. However, it's essential to strike the right balance. While diversification is crucial, too much diversification can dilute returns and make it challenging to achieve strong performance. For example, having over 50 different strategies can spread our resources too thin and reduce the impact of high-performing strategies. We must be strategic in selecting investments to ensure each contributes meaningfully to our overall goals. It's also important to highlight that diversification should be driven by market views, not merely for the sake of diluting risk. For example, if our market analysis indicates a strong potential in global macro strategies due to expected economic shifts, we should allocate more resources accordingly rather than spreading thinly across less promising areas. This approach ensures that our diversification is purposeful and aligned with our investment outlook. Additionally, we must be mindful of the lock-up periods associated with some hedge funds. Long lock-up periods, such as those extending beyond three years, can limit flexibility and are not always advisable, especially in volatile market conditions where liquidity can be a significant advantage. For instance, a hedge fund with a five-year lock-up period may not be suitable if we anticipate needing liquidity to capitalize on emerging opportunities or navigate market downturns. In summary, while diversification remains key, it is vital to avoid over-diversification and to consider the implications of lock-up periods in our investment strategy. Moreover, our diversification should be based on informed market views to maximize returns. This nuanced approach helps us build a resilient and adaptable portfolio, ready to navigate various market scenarios. #Diversification #RiskManagement #PortfolioManagement #InvestmentStrategy #HedgeFunds

Hedge fund launches surged in the second quarter, outpacing liquidations, according to the latest report. An interesting read on the evolving landscape of hedge funds in Q2 2023: https://zurl.co/cPtu. #HedgeFunds #InvestmentNews #InvestmentOutlook #PensionFunds #FiduciaryDuty

Hedge fund launches surged in the second quarter, outpacing liquidations, according to the latest report. An interesting read on the evolving landscape of hedge funds in Q2 2023: https://zurl.co/cPtu. #HedgeFunds #InvestmentNews #InvestmentOutlook #PensionFunds #FiduciaryDuty

JSK Advisory Weekly insight Can organic growth return to hedge funds? - Over the past 8 years, financial performance has almost single-handedly driven growth of hedge funds’ assets under management. Investors have withdrawn money on a net basis in five out of the last seven years - Despite the challenge to organic growth, the global hedge fund industry currently manages over $4 trillion in assets globally, an all-time high, displaying resilience - Private equity's delay in returning capital to limited partners, as highlighted in last week's note, is one factor limiting inflows into hedge funds. Another is underwhelming performance for fundamental hedge funds during the 2022 market trough, and in the years prior to the Covid-era market boom - “Multi-strategies” managers have managed to attract more flows (when they still raise money) than their fundamental peers thanks to better performance through the cycle. We will come back to these in a future weekly insight - Which fundamental hedge fund managers have what it takes to spur a return to organic growth? Source: Financial Times, Hedge Fund Research Performance and net asset flows in the hedge fund industry ($ billion)

Multi-strat launches dive in Q1 New multi-strategy hedge fund launches took a big tumble in the first three months of the year, accounting for less than 10% of all new funds and down from about 25% in the last quarter of 2023, according to a report by Reuters The report cites figures from data provider Preqin in revealing that launches of multi-strategy funds have fallen to their lowest in around a year since it started collecting the data. Large multi-strategy managers have been in demand with investors in recent years, although according to research by the prime brokerage division at Barclays only seven multi-strat firms manage assets in excess of $10m. Of the 47 multi-manager funds the bank tracks, 32 oversee less than $5bn of assets. New funds have also trailed the performance of established managers over the past three years, with annualised returns of about 7.9%, around 1% lower than existing firms with more than $5bn in assets, according to Barclays. In general, multi-strategy funds, which have outperformed the wider hedge fund sector by an average 1% over the past three years, have had a tough start to 2024, posting an average 3.1% gain for the first three months of the year compared with a 4.4% industry average. #hedgefund #assetmanagement #Q1

An article from Bloomberg underscores the shifting dynamics within hedge fund management, as illustrated by the recent developments at ExodusPoint Capital Management, LP. Despite an auspicious debut that set records, the fund, helmed by Michael Gelband, has confronted a substantial exodus of capital for the second year running, amounting to a staggering $1 billion in 2023 alone. This continued withdrawal suggests a pronounced shift in investor sentiment, possibly swayed by the comparative allure of secure, high-yield treasuries and the underwhelming performance of high-fee hedge funds. ExodusPoint's response has been to revitalize its operations through strategic staffing, aiming to bolster its equities division and realign itself with the industry frontrunners. The scenario at ExodusPoint highlights a critical juncture for investors and fund managers alike, as they navigate the delicate balance between innovation and stability in an evolving market. The key to longevity, it seems, lies in adaptability and the readiness to reinvent strategy when traditional approaches falter. How do industry professionals perceive the shifts in hedge fund investments in light of such transitions? Are high-fee multi-strategy hedge funds still viable in the face of rising treasury yields and growing investor skepticism? Join the conversation and share your insights below! #HedgeFunds #InvestorSentiment #FinancialMarkets #AssetManagement #WealthManagement #ExodusPoint #StrategicInvesting #FINTRX https://lnkd.in/ddDi3-aQ

Very precisely covered topic on HFS. Finely articulated and summarized it quite well.

Viking Global Investors, US-based hedge fund founded by Tiger Cub Ole Andreas Halvorsen, has reopened its flagship long/short hedge fund to new capital after being closed for over a decade as industry-wide equity hedge fund returns strengthen. In 2011, Viking decided to close its long/short hedge fund to new investors because it was becoming too big to explore profitable trading opportunities. The decision to reopen the fund to new capital comes at a time when equity hedge funds are the leading industry gainers, largely buoyed by a recent market rally. The stock market rally has caused some institutional investors to rethink their overall strategy. A recent Goldman Sachs survey showed big investors such as pension funds and insurance companies are willing to increase allocations to credit and equity hedge funds. #investmentmanagement #assetmanagement #alternativeinvestments #hedgefunds

JSK Advisory Weekly Insight Have we reached peak “multi-strat”? - Major "multi-strategy" hedge funds have enjoyed strong growth in assets under management (AuM) since some of them had a near-death experience during the 2008 financial crisis. As we discussed in last week’s post, they are a lone bright spot within a hedge fund sector struggling to attract inflows. The combined AuM of the four largest firms— Millennium, Citadel, Point72, and Balyasny—have surged from $35 billion to over $180 billion, a fivefold increase. Millennium and Citadel have led the race by a comfortable margin - Multi-strategy hedge funds deploy capital across a variety of independently managed trading strategies or pods. This approach aims to maximize returns, increase diversification, and manage risks effectively. Since 2008, multi-strategy funds have generated stronger risk-adjusted results with lower correlations relative to the broader hedge fund universe - Capacity constraints, increasingly expensive talent, and pressure on management and performance fees, despite pass-through models by which limited partners foot the bill for expenses, could dampen growth, as competition stiffens. Some European firms are even entering the field. Will they be able to catch up? Multi-strategy funds asset growth since 2008 Source: Bloomberg