Multi-strategy funds have performed best of all strategies
Lex column
Hedge funds
Financial Times
Published: March 28 2008 09:34 | Last updated: March 28 2008 12:31
Moving chips around a roulette table as the ball settles will get you
thrown
out of a casino. But an equivalent ruse in the hedge fund world
investing
in a flexible fund following a multitude of investment strategies seems
to
pay off time and time again.
Data from Eurekahedge on 17,000 hedge funds worldwide shows that
multi-strategy funds have performed best of all strategies and with the
lowest risk profiles since the turn of the decade. The multi-strategy
index is up about 210 per cent over that period, net of expenses better
than more celebrated sub-categories such as managed futures (+180) and
equity long/short (+170).
If the numbers are to be believed, the real mystery is why the
multi-strategy segment is not a whole lot bigger. Assets under management
have grown from about $20bn in 280 funds in 2000 to $273bn in 845 at the
end
of last year. But that is from a total hedge fund pot of more than
$1,600bn.
Has most of this money been invested sub-optimally?
Not necessarily. For one thing, definitions are shaky. Many multi-strategy
managers have in fact one single, blockbuster strategy with a few
unsuccessful satellites tacked on. Diversification efforts do not always
pay
off, and it can take years to get, say, a distressed debt or Japanese
equities team on board.
A second, more im****tant reason is agency risk. Allowing managers to chase
returns by switching capital into whatever strategy is hottest is all well
and good, but that can also be done via a fund of hedge funds. Such
vehicles
may charge another layer of fees, eating up precious performance, but they
will not be wiped out by fraud or a bad bet at one particular fund.
Concentrating on a single manager, no matter how well performing, is not
an
easy sell especially to relatively new buyers in a market scarred by
recent collapses.
http://www.ft.com/cms/s/1/11fb192c-fcaa-11dc-961e-000077b07658.html
|
