Multi-strategy Funds Are Disappearing

Multi-strategy hedge funds have had a tough time lately due to poor performance and high redemptions since the credit crisis of 2008.  Several large funds have closed - Arrowhawk Capital Partners ($575 million in AUM), Drake Capital Management ($6 billion in AUM), Deephaven Capital Management ($4.5 billion in AUM) and Stark Investments ($7.2 billion in AUM).  The last and latest, Stark, is still running $1 billion in single investment strategies such as Stark Mortgage Opportunities and Stark ABS Opportunities fund.  Other funds have converted to single strategies successfully.  They include some of the more famous names:  SAC Capital Advisors, Highbridge Capital Management and Maverick Capital Management as well as Black River Asset Management, Halcyon Asset Management, Polygon Global Partners, HBK Capital Management and York Capital Management.  The challenges in the current environment for multi-strategy funds are:

• Difficult to generate excess returns (alpha) in all strategies at the same time
• High employee turnover
• Work culture is not collaborative across strategies.  Multi-strategy funds start in convertible arbitrage or event driven strategies and then add equity long/short and other strategies.  The mindsets needed to be successful in each strategy are different and not conducive to working together.

The source for this article can be accessed here.