Rising Stars: Emerging Opportunities in the World of Multi-Strategy Funds

While multi-strategy investing has been pioneered by large, established fund platforms, an increasing number of emerging and niche players are making their mark. These rising stars are tapping into specialized areas of expertise and spotlighting new frontiers for the diversified alpha generation that defines the space.

The Multi-Strategy Landscape

The advantages of multi-strategy approaches have driven significant growth and interest in recent years:

• Global assets in multi-strategy hedge funds swelled to over $1 trillion as of 2022.

• Multi-strategy funds accounted for 32% of all hedge fund launches globally in 2021, up from 23% just three years prior.

• Large institutional investors allocated over 40% of their hedge fund assets to multi-strategy vehicles as of 2022.

This proliferation has given rise to new breed of specialized, high-conviction multi-strategy players looking to carve unique niches.

Emerging Strategy Opportunists

Certain upstarts are pioneering the integration of niche alpha sources that have been underexplored in traditional multi-strategy portfolios:

Digital Asset Strategies

• Funds leveraging crypto trading, DeFi, blockchain infrastructure, and token economics

• Focus includes arbitrage, venture/private markets, derivatives and quantitative approaches

Machine Learning/AI Strategies

• Employing cutting-edge techniques like deep learning, natural language processing and computer vision

• Constructing proprietary data sets and alpha models across a range of capital markets applications

Esoteric Derivatives and Volatility Strategies

• Identifying price discrepancies and dislocations in volatility surfaces and exotic derivatives

• Monetizing volatility risk premia using instruments like variance swaps and dispersion trading

By expanding the aperture of investable strategies, these multi-strat pioneers aim to access new sources of inefficiency and compounded returns.

Next-Gen Multi-PM Platforms

Other rising stars are innovating around the core multi-strategy concept by enhancing transparency and aligning economic incentives:

Unbundled Multi-Strategy

• Open architecture platforms housing best-of-breed single-strategy PMs on common infrastructure

• PMs compensated via negotiated revenue shares linked to their individual strategy performance

• Full transparency into underlying PMs, positions, risk metrics and attributions for investors

Direct Multi-PM Allocating

• Investors construct bespoke multi-strategy portfolios by allocating directly to component PMs/strategies

• Customized PM combinations cater to unique risk budgets, mandates and investment themes

• Applied diversification and risk management across underlying single-strategy building blocks

By rearchitecting multi-strategy delivery models, these disruptors hope to provide higher fidelity of strategy specificity, transparency and incentive alignment.

The Future Frontier

As global capital markets deepen in breadth and complexity, the possibilities for uncovering new multi-strategy alpha sources will only expand. The rising stars at the forefront should continue gaining momentum as demand persists.