The multi-manager model has firmly anchored itself in the hedge fund industry, known for delivering strong risk-adjusted returns by blending diversification with effective risk management. Even during times of market turmoil and economic uncertainty, this model has shown remarkable resilience, especially noticeable throughout the pandemic years. From 2017 to 2023, firms that embraced this strategy experienced nearly a threefold increase in assets under management (AuM). This impressive growth can be attributed to their ability to leverage diverse strategies while maintaining stability through robust risk controls. For instance, in 2022, when the public markets faced significant downturns, multi-manager platforms emerged as a compelling alternative for investors seeking lower volatility and consistent performance.
What sets the multi-manager approach apart is its division of the portfolio among various trading teams or “pods,” each specializing in distinct trading strategies. These pods operate independently, allowing portfolio managers the freedom to pursue their strategies, but all within parameters established by a central risk management team. This setup strikes a balance between autonomy and oversight, enabling managers to quickly adapt to shifting market conditions while ensuring that risk remains within acceptable bounds. This structure ensures that multi-managers can swiftly capitalize on market opportunities, maintaining consistent performance even when the broader economic landscape is unpredictable. The adaptability of the model and the pivotal role of the risk management unit are key factors in its ongoing success.
Furthermore, the multi-manager model’s growth trajectory is being fueled by expansion into new markets. Emerging financial hubs like Dubai and Abu Dhabi are becoming important to its evolution. Nearly half of the participants in a recent survey we conducted alongside Hedgeweek identified these U.A.E. locations as crucial to the platform’s next growth phase. These regions offer appealing time zones for global trading and compelling financial incentives for fund operations. Establishing satellite offices in these emerging areas harmonizes Western and Eastern markets, allowing platforms to serve a global clientele more effectively. Geographic expansion also provides strategic access to varied regulatory environments, adding another layer of diversification, especially as demand surges in regions like Asia.
Looking forward, the multi-manager model seems well-positioned to drive further growth and attract additional capital. Both institutional investors and family offices are drawn to its ability to offer tailored, diversified exposure supported by institutional-grade infrastructure. Additionally, these funds are increasingly embracing advanced technologies such as artificial intelligence (AI) to streamline operations, refine trading algorithms, and enhance risk management. By incorporating AI and other digital tools, these platforms are establishing themselves at the forefront of financial innovation, enabling them to manage expanding portfolios with greater efficiency and cost-effectiveness.
The rise in the popularity of the multi-manager model has also spurred a wave of new fund launches within this space, with many new managers bringing experience from established multi-strategy backgrounds. This new wave of managers introduces fresh innovations in strategy and operations, further diversifying the industry. As new entrants adopt and expand upon the core principles of the multi-manager approach, the model’s ability to remain agile, offer diversified risk-adjusted returns, and attract top talent is anticipated to strengthen its position within the hedge fund sector.
Overall, the multi-manager platform has proven its worth as a strong investment model, particularly in volatile economic times. To explore these trends and regional shifts in more detail, download the full report.
