Investment Strategies of Hedge Funds

12

Multi-Strategy

12.1 MULTI-STRATEGY FUNDS

Multi-strategy funds generally specialize in convertible bond arbitrage, fixed income arbitrage, distressed securities, event driven and merger arbitrage. Depending on the opportunities offered by the markets, the fund manager decides which percentage of his capital he intends allocating to the single strategies: this way the fund manager can seek to capture multiple opportunities, without having to invest along a specific strategy that under given market circumstances could prove unprofitable. Another advantage brought by multi-strategy is the diversification of return sources across multiple strategies. Due to these characteristics, it is impossible to associate these funds with any of the strategies analyzed up to now.

Generally, the front offices of the management companies of multi-strategy hedge funds are organized into trading groups, each specializing in a specific investment strategy. The hedge fund’s chief investment officer is the person deciding the hedge fund’s capital allocation across the various trading groups, and he changes this allocation dynamically depending on the opportunities he predicts the single strategies are going to present.

In addition to the above strategies, some multi-strategy funds allocate part of their capital to long/short equity, statistical arbitrage and other minor strategies, like PIPEs or energy trading, which we will cover more extensively in Chapter 13.

Multi-strategy funds are similar ...