There are many strategies for the modern investor. But are hedge funds really the best way to make cash?
It’s that time of year again. The hedge fund and investment fund conferences are about to hit town. But in a world devoted to the single manager versus multi-manager argument, little mention has been made of the seismic shift in attitudes and stance both from provider and investor. In the flood of new offerings it is all too easy to forget the basic reasoning behind multi-manager funds.
Why invest? The arguments were, and are, clear. Portfolio diversification, lack of correlation to other market areas, access to managers ordinarily beyond the reach of private investors, mean performance averaging out returns over the long term and smoothing volatility. Against such worthy considerations are stacked equally compelling arguments: double charging, no real value added by an additional management layer, poor real returns compared to other hedge fund segments.
Throughout the 1990s, however, the positive arguments seemed to win through and the existing multi manager funds enjoyed a golden age when not only private clients bought in directly but also increasingly, institutions were sold on the idea, either investing on a client’s behalf or frequently with proprietary capital. In an explosive stock market environment, it took little to persuade many to set up their own alternative investment departments and the first step into the water for many proved to be the multi-manager product. Since then, financial institutions answered the siren call of non-traditional investment and there has been an explosion of multi-manager hedge style offerings as marketing departments sought ways to update themselves and to protect their existing distribution bases from poaching.
