In 2024, multimanager hedge funds are increasingly allocating capital to external hedge funds, a strategic shift fueled by fierce competition for top-tier talent and the need to diversify investment strategies. This trend highlights the industry's adaptive measures in a challenging environment where attracting and retaining skilled portfolio managers is more difficult than ever.
Rising external allocations
A recent Goldman Sachs report from September 2024 reveals that around 70% of multimanager hedge funds are engaged in external allocations, up from just over 50% in 2022. This increase underscores the industry's growing reliance on external managers to tap into diverse investment opportunities and alleviate constraints imposed by internal talent shortages. Furthermore, these allocations have seen an uptick in capital allocation, with some funds dedicating as much as 40% of their assets under management to external partnerships, a noticeable rise from 25% in previous years.
Drivers behind the shift
Amid heightened competition, multimanager firms are looking outside their walls for specialized expertise, allowing them to tap into broader talent pools and advanced strategies without the burdens of direct recruitment. External allocations help these firms access niche capabilities that can enhance portfolio performance, while also offering a flexible solution to address internal talent shortages.
Several prominent multimanager firms have adopted this strategy, including:
Schonfeld Strategic Advisors has significantly expanded its external allocations, strategically leveraging outside expertise to complement its in-house teams and broaden its investment scope. Point72 Asset Management, in response to rising competition for top talent, has heavily invested in external hedge funds, tapping into specialized strategies and providing clients with a diverse range of investment opportunities. Similarly, Boothbay Fund Management has taken a proactive approach by allocating capital to external managers, focusing on varied investment approaches to diversify its portfolio and strengthen internal capabilities.
This trend marks a shift in hedge fund operations, allowing multimanager firms to access specialized strategies and expertise that are hard to build internally. While external allocations enhance portfolio diversity, they also come with challenges, including added due diligence and potential fee impacts. By tapping into external expertise, these firms adapt to a competitive talent situation, aiming to balance the benefits of diversification with associated risks to ensure strong outcomes for investors.
Share
Similar Articles:
