Multi-strategy alternatives have gained increasing attention as shifting market dynamics have forced investors to re-evaluate the durability of traditional investments.
We examine how multi-strategy alternatives can improve a portfolio’s risk-adjusted returns and why thoughtful construction when building these investments is critical.
What is multi-strategy alternative investing?
Multi-strategy alternative investing aims to deliver consistency, capital preservation and strong risk-adjusted returns. As the name implies, multi-strategy investing combines a variety of hedge fund strategies within a single fund. The underlying strategies can vary but are usually some combination of the five broad hedge fund categories shown to the left—event-driven, credit, relative value, macro and equity.
By investing across a range of strategies, multi strategy funds have the flexibility to target specific drivers of risk and return and are better equipped to reach their investment objectives through changing market environments. When constructed thoughtfully, controlling for correlation and volatility, multi-strategy investing may serve as a “one-stop shop” alternative allocation and improve a portfolio’s risk-adjusted return potential.
The search for stable risk-adjusted returns has become more difficult than ever as the Great Moderation—characterized by the 40-year decline in interest rates and inflation—comes to an end. Amid a more muted growth outlook and bonds lacking the tail wind of falling rates, investors need an alternative.
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