Multi-strategy hedge funds could face renewed pressure to expand their portfolio manager ranks as a surge in investor capital outpaces growth in industry headcount, according to a report by eFinancial Careers citing comments from a Goldman Sachs executive.
Freddie Parker, Goldman’s co-head of prime insights and analytics and co-head of Americas capital introduction, told the AIMA podcast that multi-strategy managers had attracted around $500bn of additional assets over the past year, representing growth of approximately 25%.
The pace of capital raising and inflows is significantly stronger than the expansion in staffing, however. Goldman estimates that headcount across the sector has increased by only around 10% to 11% over the same period.
Parker said the mismatch could ultimately force large multi-strategy firms to step up their recruitment of portfolio managers and other investment professionals, particularly as they work to put newly raised capital to work.
Large inflows can create an investment challenge for multi-strategy managers because newly arrived capital takes time to deploy. Parker said the resulting “digestion” period can weigh on returns while firms build the capacity and investment teams required to manage larger pools of capital.
The scale of the challenge is amplified by the leverage typically employed by multi-strategy platforms. JPMorgan estimated last year that average leverage among such funds stood at 645%. If that level were applied to the additional $500bn of capital identified by Goldman, it would equate to roughly $3.2tn of additional leveraged exposure.
That does not necessarily translate into an equivalent increase in internal hiring, however. Multi-strategy firms are increasingly addressing capacity constraints by allocating capital to external managers, allowing them to expand their investment exposure without adding the same number of portfolio managers to their own platforms.
Parker acknowledged that this trend means industry headcount figures may not provide a complete picture of the amount of investment talent being deployed to manage the additional capital.
The expansion of multi-strategy platforms comes after a prolonged period in which some of the industry’s largest firms have built out increasingly broad teams of specialised portfolio managers and strategies. The ability to recruit and retain experienced investment talent remains a key constraint as managers compete for returns across crowded markets.
Parker also said the current interest-rate environment could prove supportive for hedge funds more broadly, although he expects some strategies to face greater challenges.
In particular, he singled out long-short equity managers with a bias towards growth stocks as an area that could struggle in a higher-rate environment, while suggesting that the broader hedge fund sector should benefit from the opportunities created by elevated rates.
