Hedge Fund Investing: A Practical Approach to Understanding Investor Motivation, Manager Profits, and Fund Performance

Flows and Performance

The multistrategy style has also seen steady growth in assets under management from the beginning of the millennium until 2008. Institutional investors are attracted to the strategy because of its familiarity and similarity to traditional equity investing and its ability to positively impact portfolio returns when used as a substitute for traditional equity allocations.

According to data compiled by HFR, the strategy had steady growth from 2000 to 2007, increasing from under $50 billion to almost $300 billion. The strategy was less adversely affected by the financial crisis than many other strategies. Assets from both redemptions and losses contracted to just over $200 billion at the end of 2008 before regaining new highs in 2012 at more than $320 billion.

Investors have generally been rewarded with positive quarterly performance over changes in the business cycle. The strategy lost money in the third quarter of 2008 but rebounded in the fourth quarter and into 2009, and over time it has had significantly more positive than negative quarters.

According to recent data from Eureka Hedge at the end of March 2012, included in Table 8.1, Bridgewater was the largest multistrategy hedge fund manager, with two funds in the number one and two positions globally. The company's flagship fund was over $20 billion in assets, and its second largest fund was almost $10 billion in assets. The rest of the top 10 largest multistrategy funds ranged from $3 billion to almost ...