Long/short equity, global macro, multi-strategy, event-driven. When to use them and when not to.
Manager runs a specific strategy — long/short equity, macro, event-driven, etc. — typically with the ability to use leverage, short positions, and derivatives.
Position sizing + stop-losses + hedging. Multi-strat funds add overlay risk management across the firm. Top-tier funds: <10% max drawdown.
Typical: quarterly liquidity with 30–90 day notice + initial 12-month lockup. Multi-strats often have monthly liquidity. Always read the redemption queue terms.
Standard: 2% management + 20% incentive over a hurdle (often LIBOR or 6%). Multi-strats often charge pass-through expenses — explicitly model the all-in cost.
Allocates across L/S equity, macro, credit, etc. with central risk management. Citadel, Millennium, Point72 archetypes. Lower vol, steady returns.
Long undervalued stocks, short overvalued. Net long bias typically 30–60%. Performance highly manager-dependent.
Top-down bets on rates, FX, commodities. Counter-cyclical. Brevan Howard, Bridgewater, Element. Volatile but uncorrelated.
M&A arb, distressed, special sits. Idiosyncratic. Performance tied to deal flow + corporate activity.
Algorithmic strategies. AQR, Two Sigma, Renaissance. Different risk profile — model risk + crowding risk.
When the client has the alts sleeve already filled with PE + private credit, and wants liquidity + low correlation. HFs are the "diversifier within the diversifier."
Multi-strat with central risk management is the closest thing to "low risk" in HF. Citadel-style funds aim for 8–10% net with <5% vol.
HFs aren't a beta strategy — they're pure alpha. The market doesn't pay you for being there; the manager has to generate the return.
For most Orion advisors, yes — direct manager selection is hard. The FOF fee layer is the price of diversification + expert manager selection.