The evolution of the multi-manager (multi-strat) model has been a defining feature of the industry’s recent trajectory. Though these platforms do not lead the industry in terms of total assets under management (AUM), by strategy, their accelerated growth cannot be ignored. The industry is talking about it. They have captured the attention of both allocators and managers alike and continue to influence structural and strategic shifts.

The rise of the multi-strat

As we know, several interconnected factors have shaped the resurgence of multi-strats, most notably investor preferences in a post-global financial crisis world. Heightened regulation has raised the barriers to entry yet again, continuing to make it difficult for smaller, single-manager firms to achieve the AUM necessary for sustainability. Concurrently, institutional capital has come to represent a larger proportion of overall hedge fund investment. Such investors often prioritize scale and their perception of greater risk controls alongside operational robustness.

Talent as a strategic asset

A notable consequence of the growth of the multi-strats’ has been their ability to attract top-tier talent. In many cases, investment professionals who might previously have considered launching independent firms are instead opting to join established platforms. The advantages are clear: access to institutional-grade operational infrastructure, immediate capital backing, and freedom to focus on alpha generation without the obligations arising from running a firm. The virtuous cycle – where superior talent begets stronger performance, which in turn attracts further investment – has cemented the multi-strat model’s position in the industry.

Implications for new launches

While the prominence of multi-strats has altered the launch landscape, it has not entirely closed the door on new entrants. Spin-outs and exclusive seeding arrangements remain viable paths to market entry, but they are not the only routes available. Managers offering niche or differentiated strategies that fall outside the remit of multi-strats continue to attract attention.

There are increasingly common instances where smaller, independent firms opt to operate separately managed accounts (SMA) or bespoke mandates funded by larger allocators, including multi-strats themselves. These structures offer a route to building track records and long-term viability, although often with low probability of persuading the SMA owner(s) to move into a comingled fund.

The endurance of single managers and funds of funds

Despite the influence of multi-strats, there remains a place for single-manager hedge funds and traditional fund of funds, for example (i) specialising in niche strategies not covered by multi-strats (ii) today’s investor base is becoming ever more sophisticated and willing to explore beyond the most prominent platforms in search of alpha.

Not all talent thrives within institutionalised environments; some managers are drawn to the autonomy and creative freedom of running their own shops.

Evaluating the pros and cons

The benefits of multi-strats are well known – scale, access to top talent, investor perception of sophisticated risk management, and resilience in volatile markets. However, these advantages come with trade-offs. For example:

• The operational complexity inherent in managing large, decentralised teams may be perceived to hinder agility and innovation.
• Fees – while investors may accept higher costs during periods of outperformance, fee tolerance could well wane if returns fall short of expectations.
• Data shows that multi-strats have a lower AUM to employee ratio than other multi-billion-dollar firms. One could infer from the data that multi-strats are more reliant on their own teams and proprietary systems. Those managers leaning into outsourcing, co-sourcing and/or third-party software solutions, for example, may be able to lower their costs, boost profitability, and thereby enhance their ability to attract and/or retain key talent over time.

Outlook: Sustaining momentum

The ability to adapt to regulatory shifts, invest in technology, and respond to market dynamics suggests continued success. Established reputations and track records of outperformance make them a natural choice for many institutional allocators.

Talent over the long term will require more than just financial incentives. As platforms scale, they risk becoming bureaucratic and less entrepreneurial, potentially pushing high-performing individuals to seek independence. Succession planning and cultural cohesion will become increasingly important as these firms mature.