Multi-Strategy Fund of Hedge Funds
UK charitable foundation | May 2017
Engagement at a glance
A UK foundation aimed to identify a core multi-manager hedge fund product, targeting cash plus 4-6% and diversification against traditional exposures in their portfolio.
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.
- 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.
Our specialist says
On the face of it, this was a straightforward search for a pooled, flagship, multi-strategy FoHF. However, we were able to educate the investor on a newer structure in the multi-manager hedge fund sector, with which many investors are not yet familiar. This gave the key benefits of lower overall fee drag and increased transparency, both of which were particularly important to this investor.