In the world of hedge funds, significant emphasis is placed on returns and track records. However, one expert says advisors aren't allocating to hedge funds purely because of their returns or performance.
In a recent interview with Hedge Fund Alpha, Alan Strauss, senior partner and investor relations director at Crystal Capital Partners, highlighted the hedge fund strategies that are most in demand among advisors, adding that the key is risk mitigation rather than return enhancement right now.
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Crystal Capital Partners operates an investment platform that caters to investment advisors, helping advisors use a portfolio approach for qualified investors across varying strategies, from buyouts to venture capital, real estate, and other strategies. Crystal Capital Partners' platform enables them to invest in the same way the largest institutional investors have done.
Top hedge fund strategies among advisors
According to Crystal Capital Partners, advisors' top hedge fund strategy allocations in 2024 were long/ short equity at 40%, equity market neutral at 32%, and multi-strategy at 11%, followed by long biased at 9%.
Strauss explained that advisors' use of hedge fund allocations as part of client portfolios has shifted over the years. Today, advisors are using them to preserve capital and reduce risk. Recently, Strauss has seen a number of hedge fund strategies identify as risk-mitigation funds versus return-enhancing funds.
Three of the top four strategies are clearly risk mitigators, although Strauss noted that long/ short equity could also be seen as a return-enhancing strategy, especially right now.
He also pointed to some levels of dispersion among hedge funds, especially among equity market neutral and multi-strategy funds.
"If you want your portfolio to compound at an attractive return because it mitigates risks, those strategies adequately and successfully navigate market volatility," Strauss explained. "Those strategies were either positive or near positive in April, and the same in March, and that's really part of the conversation with advisors, as well as other risk-mitigating strategies."
He also noted that hedge funds in general support growth more adequately than just investing in the public markets alone.
Rising adoption of certain strategies
In the first three months of 2025, Crystal Capital Partners saw an increase in the continued adoption of those four strategies. Into the first part of April, Strauss said advisors continued to want more of those strategies, although they aren't hitting the panic button just yet.
"[Hedge fund] portfolios right now are extremely positive relative to traditional investments without having that 9% drawdown [in early April]," he added. "These particular hedge fund strategies were not exposed to that… When the market is down 13%, we haven't seen that from these hedge fund strategies. People are staying the course with alternatives because they're getting peace of mind."
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