Multi-Strategy Fund of Hedge Funds

Client-Specific Concerns

The investor had a longstanding allocation to the FoHF space but had become concerned over the manager’s approach – particularly style drift and communication of portfolio changes, as opposed to explicit performance concerns. They were looking for a replacement manager who had solid FoHF experience and were able to communicate their strategy clearly. They also had a preference for flagship, multi-strategy approaches across core HF styles, with more esoteric approaches kept to a minimum.

Outcome

• The FoHF landscape has undergone meaningful change in recent years, with consolidations and closures as a result of reduced investor appetite following 2008. Managers in the space have also generally moved towards providing customised portfolios rather than pooled products. bfinance cast a wide net to ensure full coverage for pooled, multi-strategy funds of appropriate size for the client.
• The foundation was keen to avoid undue complexity, looking for a core exposure to the main hedge fund styles.
• From early on in the process we were active in engaging with the investor on a newer structure within the multi-manager HF space – the ‘fund of sub-advisors' approach, which uses separate sleeves of a single fund vehicle managed by a range of hedge fund managers rather than the traditional fund of funds approach (see Sector in Brief: Funds of Sub-Advisors).
• After detailed qualitative comparison and due diligence, narrowing the group to twelve and then four, the client invested with one manager. Despite a shorter track record, a fund-of-sub-advisors strategy was ultimately chosen.