A relatively small 16% of the institutional investors on the Preqin database state a preference for single manager multi-strategy vehicles. Most investors invest in either funds of funds in order to diversify their portfolios or preferring to invest in a range of several strategy specific funds instead.
Multi-strategy funds can offer the institutional market reduced volatility, steady sources of returns and a reduced exposure to any one asset class or investment style, thus reducing portfolio concentration risks. This risk mitigated diversification is appealing to the more conservative institutional investor and use of this type of fund is common amongst the superannuation schemes of Australasia as well as public pension funds in Europe and North America. They are also used to a lesser extent by insurance companies and asset managers.
The multi-asset, multi-style nature of multi-strategy funds often necessitates this kind of fund to be larger than single strategy hedge funds, so it is the investors with the most assets under management as well as the largest allocations to hedge funds which tend to be active in the multi-strategy space.
Investors in multi-strategy funds use this kind of vehicle for asset protection, rather than asset growth within their hedge fund portfolios, and on average seek absolute returns of 7.9% from their multi-strategy managers.