Hedge Fund Strategies 101:
Multi-Strategy Funds
Hedge Fund Fundamentals | January 2015
Introduction
Hedge funds offer qualified investors a unique partnership, with the ability to invest
alongside them.
While hedge funds first began as a way to offer investors a balanced - or market-neutral –
approach to investing, the methods for delivering returns have evolved through the years.
This presentation provides a brief overview of some of the strategies used by hedge
funds in the marketplace today.
Topics:
• Investment Strategies
• Multi-Strategy Funds
• New Hedge Fund Partnerships
• Resources
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Investment Strategies
Hedge funds offer investors a broad range of investment options. No two
hedge funds are identical, but funds can be categorized broadly by the
type of strategies they employ.
While the individual investment decisions made by each fund vary, hedge
funds are united by the same fundamental goals:
•
Portfolio Diversification- Prevents over-concentration in specific assets.
•
Risk Management – Helps anticipate and avoid volatility in the marketplace
•
Reliable Returns Over Time – Provides opportunities for asset growth
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Multi-Strategy Funds
Investment managers maintain a variety of processes to arrive at an
investment decision, including both quantitative and fundamental techniques.
Strategies can be broadly diversified or narrowly focused on specific sectors
and can range broadly in terms of levels of net exposure, leverage, holding
period, concentrations of market capitalizations and valuation ranges.
According to the Preqin 2014 Report on Hedge Funds, multi-strategy funds
account for 9% of all assets managed across the direct hedge funds on the
Preqin database.
Various strategies are employed in a multi strategy fund. Some examples are:
convertible bond arbitrage, equity long/short, statistical arbitrage and merger
arbitrage
Source:2014 Preqin Global Hedge Fund Report
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Institutional Investors Seeking Out New Hedge Fund
Partnerships
According to Preqin’s 2014 Global Hedge Fund
Report, investors expect to increase hedge fund
allocations to their existing portfolios over the
next 12 months.*
Beyond multi-manager funds, public pension
funds are the most active type of institutional
investor seeking new hedge funds, with the
proportion of the total number of fund mandates
issued by this group rising throughout the year.
This is in line with recent growth trends, which
indicate that in 2007, around 196 public pension
funds invested in hedge funds - today that
number is around 377.
The accompanying chart outlines how investors
are expected to allocate – by strategy – over the
next 12 months.**
Source: 2014 Preqin Global Hedge Fund Report
**Data for 2015 will be updated as soon as published.
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Resources:
For more information on hedge fund strategies, visit:
1.
Managed Funds Association or www.managefunds.org
2.
Hedge Funds 101
3.
Hedge Fund Strategies: An Overview of the Various
Investment Strategies Offered by Hedge Funds in the
Marketplace Today
4.
Hedge Fund Research Strategy Definitions
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