Kier Boley, Co-Head and CIO of Alternative Investment Solutions at UBP, explains how he thinks about manager selection, why the current environment favours certain strategies over others and what emerging managers are consistently getting wrong.
There is a version of the current hedge fund environment that looks straightforwardly positive. Volatility is elevated. Dispersion across markets is wide. Strategies that struggled through a decade of central bank-suppressed uncertainty are generating returns again. Allocator interest, by Hedgeweek®’s own survey data, is rising across almost every strategy category.
But the version Kier Boley describes is more nuanced than that. Boley, Co-Head and CIO of Alternative Investment Solutions at UBP, has spent his career on the allocator side of the hedge fund industry – assessing managers, constructing portfolios, and watching the bar for institutional investment shift over time. His read on the current moment is that the opportunity is genuine, but that the conditions for capturing it are more demanding than they have ever been.
“The toughest environment is a period where there is very low volatility, because uncertainty is backstopped by monetary policy or fiscal policy,” he says. “In this period of greater volatility, there are more opportunities to trade or invest.” The 2010s, he argues, were precisely that kind of suppressed environment. A near decade-long equity bull market that squeezed the short side, compressed hedge fund returns relative to passive alternatives, and led capital to migrate toward private assets. The 2020s have reversed that dynamic, sharply.
What has changed is not just the macro backdrop. It is the role hedge funds are now expected to play within a portfolio — and the analytical rigour with which allocators assess whether a manager can actually deliver it.
A More Sophisticated Allocation Framework
The shift in how allocators think about hedge fund exposure is, in Boley’s telling, fundamental rather than cyclical. A decade ago, the typical institutional approach was a single alternatives allocation with a total return target — usually a multi-strategy blend across the four main hedge fund categories. The question was simply whether the aggregate return justified the fee and illiquidity.
That has changed. “Today it’s changed. People are much more factor aware of what drives returns,” Boley says. The consequence is that a hedge fund allocation is no longer evaluated in isolation. It is evaluated against what it replaces or complements in the broader portfolio.
“What you can do now within the hedge fund industry is create a solution that is either a replacement for equities, a replacement for fixed income, or a diversifier for your whole portfolio.”
The return decomposition framework Boley uses to assess managers reflects this evolution. He breaks returns into three components:
- Passive beta: the lowest quality, essentially market exposure in disguise
- Strategy alpha: what the broader peer group generates in a given market regime
- Unique alpha: genuinely differentiated return that justifies an allocation.
“The most valuable managers combine strategy alpha with unique alpha, supported by barriers to entry,” he says. It is a framework that cuts through the noise of short-term performance and forces a more precise question: what, exactly, is this manager doing that others cannot replicate?
Where Alpha Is Emerging Now
Within the current environment, Boley identifies two areas where strategy alpha is most readily available. The first is fixed income relative value, where elevated volatility in government bond yields is creating the kind of pricing dislocations that relative value managers exist to exploit. The second is emerging markets, which he describes as underinvested for several years and now showing genuine opportunity as that underinvestment begins to reverse.
The broader point he makes about strategy alpha is that it is regime-dependent. It shifts with market conditions, and the skill is in identifying the inflection points where one regime transitions to another. The current environment, characterised by policy uncertainty, elevated geopolitical risk, and wide dispersion across asset classes, is one in which that kind of regime awareness matters considerably more than it did through the long, low-volatility drift of the previous decade.
On private credit, an asset class that absorbed significant institutional capital during the period of compressed hedge fund returns, Boley’s view is measured. The migration toward private assets from roughly 2010 to 2020 was a rational response to hedge fund underperformance. From around 2021, that calculus began to shift as hedge fund returns improved relative to other asset classes and many allocators found their private allocations fully committed. The question now is where that recycled capital goes. For a growing number of institutions, the answer is back toward liquid alternatives.
The Launch Environment: Interest Up, Bar Higher
Hedgeweek®’s own allocator research puts a number on the renewed interest in emerging managers. Some 47% of allocators surveyed are actively seeking new manager relationships. But the same data reveals the constraint: 56% say they would require institutional-grade service providers before committing capital to an emerging manager.
Boley’s own position on emerging managers is unambiguous. UBP typically requires a minimum three-year verifiable track record before considering an allocation. The investment case for spinouts from large platforms is often strong — these managers bring demonstrable performance history and deep market experience. The weakness, consistently, is on the operational side.
“An emerging manager must demonstrate that their operational side is as strong as their investment side,” he says. “And in this environment, they need a much larger AUM to put all of that into place.” The threshold he cites has moved substantially. A launch that might have been considered viable at $100m a decade ago now requires closer to $400-500m on day one to meet the operational and infrastructure expectations of institutional allocators.
“Ten years ago, $100m could be a successful launch. Today, you really need closer to $400–500m on day one.”
The source of that day-one capital has also shifted. Early institutional support from private banks (once a meaningful pathway for new launches) is considerably less common today. Capital is more likely to come from family offices or, most structurally, from platform SMAs. Here Boley adds a note of nuance that cuts against the prevailing industry narrative around SMAs as a straightforward launch catalyst.
He distinguishes between two types. The first –an SMA from a large platform hedge fund allocating to an external manager – provides genuine scale on day one and is meaningfully beneficial. The second, from smaller institutional platforms, carries more constraints: limits on ownership percentage, concerns about the institution’s size relative to the manager’s total AUM. “I personally wouldn’t” characterise the second type as a reliable pathway to institutional capital, he says.
What Differentiates the Managers That Get Allocations
The managers that attract capital in this environment, in Boley’s framework, are those who can demonstrate unique alpha. That is a high bar. Most managers, most of the time, are generating some combination of passive beta and strategy alpha. The former is essentially a fee drag on market exposure. The latter is valuable but cyclical – it shifts as market conditions change and offers no structural moat.
What separates the top tier is the ability to generate returns that the peer group cannot. That might come from proprietary data or analytical edge, from structural access to certain markets or instruments, or from a process that is genuinely difficult to replicate at scale. It is not, in Boley’s framework, a function of recent performance in a favourable regime.
Looking ahead 12 to 18 months, he does not anticipate major structural changes to the industry. But he flags one dynamic worth watching: large platform hedge funds may begin returning capital as they approach capacity constraints. If that happens, it would force allocators to reallocate into currently underinvested strategies –a rotation that could meaningfully shift where the next generation of alpha is found.
For managers positioning themselves for that rotation, the message from the allocator side is consistent: the environment is as favourable as it has been in years, the interest is genuine, and the bar has never been higher. Those two facts are not in tension. They are, in the current market, simply the terms of the conversation.
