​​The Future of Multi-Strategy: Trends to Watch and Strategies to Adopt

In the ever-evolving world of alternative investments, multi-strategy funds that dynamically blend disparate disciplines like equity long/short, global macro, credit, and quantitative strategies are increasingly capturing attention. As markets grow more volatile and complex, the ability to be tactically adaptive is becoming paramount.

The Rise of Multi-Strategy

The appeal of multi-strategy or multi-PM approaches lies in their ability to navigate rapidly shifting market conditions by quickly adjusting exposures across different alpha sources. Key drivers behind their growth include:

• The failure of traditional asset allocation models in recent market environments

• Increased regulatory pressures on single-strategy funds

• Investor demand for diversification beyond traditional asset classes

• The convergence of investment strategies and trading techniques

By EY's estimates, the proportion of global hedge fund assets deployed in multi-strategy vehicles will swell from 17% to 25% by 2025, making it one of the industry's fastest-growing segments.

Emerging Trends Shaping Multi-Strategy

As multi-strategy proliferates, several trends are developing that sophisticated investors should monitor:

Systematic vs. Discretionary Blending

• A hybridization of quantitative and fundamentally-driven approaches is occurring

• Top funds incorporate aspects of both systematic and discretionary analysis

Rise of Quantamental Solutions

• Combining machine learning techniques with traditional fundamental research

• Aims to augment PM decision-making with artificial intelligence
  
  

Incorporation of Alternative Data

• Funds tapping unstructured data sets like satellite imagery, web scraping, social media

• Informational advantages powering alpha generation across strategies

"The lines between different investment styles are fading as innovative multi-strategy funds integrate diverse quantitative signals into holistic portfolios," said Katrina Dudley of Franklin Templeton.

Implementation Approaches While the largest multi-strategy players develop fully integrated platforms, other paths exist for investors to gain exposure:

Multi-Strategy Fund of Funds

• Provides diversified multi-PM exposure by investing across underlying single-strategy funds

• Relies on skilled portfolio management to optimally size individual strategy allocations
  
  

Customized Solutions

• Strategic partnerships allow investors to construct bespoke portfolios of underlying strategies

• Facilitates portfolio customization aligned with unique risk budgets and return goals
  
  

When executed effectively, multi-strategy approaches can offer a powerful mechanism for navigating periods of volatility and change across global markets.