Rapid Growth for Multi-Manager Platforms – Trends and Technology

The multi-manager platform has emerged as a dominant force in the hedge fund industry, significantly contributing to its recent growth. Between 2017 and 2023, assets under management (AuM) for multi-managers nearly tripled, with a 175% increase compared to a 13% rise for the rest of the hedge fund sector. This rapid expansion is largely due to the platforms' ability to combine diversification with low volatility and strong risk-adjusted performance. Even though returns have slightly decreased since the peak of the pandemic, multi-manager strategies continue to outperform, as evidenced by a 6.5% gain in the PivotalPath Multi-Strategy Index for the first eight months of 2024. Our latest report, in partnership with Hedgeweek, explores the key themes and trends driving this success, providing valuable insights for industry practitioners.

One notable trend is the expansion of multi-manager platforms into emerging financial hubs such as Dubai and Abu Dhabi. Almost half of the survey respondents believe that these locations will be instrumental in driving the next phase of platform growth, owing to favorable time zones and financial incentives. At the same time, the hedge fund industry's "war for talent" is having a significant impact, particularly on compensation. Top traders are commanding increasingly large signing bonuses, which in turn drives up pass-through fees for clients. This intense competition for talent is also seen as a factor that could lead to consolidation in the industry, as platforms face high operational costs. More than two-thirds of respondents believe that consolidation is likely, with the multi-manager model's ability to pass on costs enabling these firms to offer competitive compensation packages.

Looking ahead, consolidation and technological innovation are expected to shape the future of the multi-manager platform. The platforms are leveraging artificial intelligence (AI) to optimize both operations and front-office functions, making them leaders in financial innovation. Outsourcing is also becoming more prominent as platforms seek to streamline their processes and reduce costs. However, challenges remain, particularly in maintaining strong performance. While single-manager strategies made a comeback in 2023, multi-managers will need to continue outperforming the risk-free rate to justify their higher fees. Despite these challenges, the multi-manager model is expected to remain a key driver of growth within the hedge fund industry.

The multi-manager platform has fundamentally reshaped the hedge fund landscape, delivering strong, risk-adjusted returns and driving industry growth. As the model continues to evolve, it is poised for further expansion into emerging markets and greater integration of advanced technologies like AI. While competition for talent and high operational costs present challenges, the industry's overall outlook remains positive, with the multi-manager approach cementing its place as a leading investment strategy.

To learn more about the rapid growth of multi-manager platforms and how it could shape the future of the industry, download the full report.