In the past wealth management programs often turned to multi-strategy hedge funds of funds as an efficient and “safe” means to add exposure in the alternative space. These funds offered the ease of “one-stop shopping” access to a broad range of alternative strategies as well as the promise of potentially lower risk through diversification.
Now, the advantages of hedge funds of funds –– plus, in many cases, greater transparency, lower fees and improved liquidity –– are being offered by multi-alternative mutual funds to a wider retail audience. Since the financial crisis, multi-alternative mutual funds have grown at a CAGR of nearly 50% with annual inflows in the $4 to $5 billion range. The number of funds in this category has doubled since 2011, and industry giants such as Janus, INVESCO and Russell have entered the market. Somewhat of a catchall category, these funds range from multi-strategy, multi-manager fund of funds to single strategy, single manager. As the market grows, we expect there to be greater segmentation of this fund category.
We anticipate rapid growth of these funds to continue as acceptance grows among RIAs and financial advisors serving both HNW and mass affluent clients, and as DC plans look to add appropriate alternative options to investment menus.