Multi-strats may need to accelerate PM hiring as assets surge

Multi-strategy hedge funds may need to hire more portfolio managers quickly as a surge in investor capital outpaces industry headcount growth, according to Goldman Sachs. In the past year, these firms attracted around $500 billion in new assets, a 25% increase. However, staffing has only risen by 10-11% during the same period. This disparity could compel large multi-strategy firms to intensify their recruitment efforts, particularly as they deploy newly raised capital.

The deployment of this capital takes time, creating a "digestion" period that can negatively impact returns while firms build the necessary capacity and investment teams. This issue is compounded by the high leverage typical of multi-strategy platforms. JPMorgan estimates that average leverage among such funds was 645% last year.

If this leverage were applied to the $500 billion of additional capital, it would amount to approximately $3.2 trillion in extra leveraged exposure. To manage this extra capital, multi-strategy firms are increasingly allocating it to external managers, allowing them to expand their investment exposure without significantly increasing their own portfolio manager headcount.

This trend may not fully reflect the amount of investment talent being deployed, as industry headcount figures might not capture the full extent of talent being utilized. The growing multi-strategy platforms stem from an extended era where major firms built extensive teams of specialized portfolio managers and strategies. However, recruiting and retaining experienced investment talent remains a key constraint for managers competing in saturated markets.

Parker also indicated that the current interest rate environment could benefit hedge funds overall, although some strategies might face difficulties, particularly long-short equity managers biased towards growth stocks. The broader hedge fund sector is expected to benefit from the opportunities created by higher rates.