Hedge funds serve as an important component within wealth managers’ portfolios, providing protection from downside risk along with diversification benefits.
The hedge fund strategy most utilised by wealth managers is a diversified mandate, which is a strategy preference for 75% of wealth managers active in the asset class. This results from the fact that most wealth managers use hedge funds to provide their clients with the benefits of diversification. Long/short equity, macro and managed futures/CTA are also commonly used strategies, each representing a preference for 40%, 21% and 18% of wealth managers respectively.
Multi strategy, long/short credit and event driven are also popular strategies, with 17%, 12% and 11% of wealth managers outlining these strategies as preferences respectively. Fixed income and distressed strategies are slightly less commonly used, being a strategy preference for 10% and 8% of private wealth investors respectively. Relative value strategies are not particularly attractive to wealth managers; no single relative value strategy was preferred by more than a tenth of wealth managers. Of this type of strategy, convertible arbitrage was a strategy preference for the most wealth managers, at 8%, closely followed by equity market neutral (7%), relative value arbitrage (6%) and fixed income arbitrage (6%). Capital structure arbitrage and statistical arbitrage are of lower importance to wealth managers, being a preference for 2% and 1% of wealth managers respectively.