Blackstone on hedge funds: Why multi-strats are back

SPEAKER_1 (0:01)

This podcast is intended for institutional and professional investors, not for retail use.

Kumar Panja (0:10)

Welcome to the JP. Morgan Making Sense channel. I'm Kumar Panja, and I'm excited to be joined by two very knowledgeable leaders from Blackstone. Joe Dowling, who is a Senior Managing Director and Global Head of Blackstone's Multi‑Asset Investing business called BXMA, and Riad Abrahams, who is a Senior Managing Director in BXMA as well, where he serves as Head of Strategy, Risk and Quant Analytics. Welcome, gents.

Joe Dowling (0:32)

Kumar, thanks for having us.

Riad Abrahams (0:33)

Thanks, Kumar.

Kumar Panja (0:34)

Today, we're going to be focusing on the Multi‑Strategy Hedge Fund space and the way in which investors are increasingly using Multi‑Stratas, Multi‑Strategy as a powerful tool within their alternatives portfolio. And Blackstone have been investing in this space for 29 years, am I right?

Joe Dowling (0:47)

You are.

Kumar Panja (0:48)

And are both investors in Multi‑Strategy Hedge Funds, as well as having their own Multi‑Strategy solutions. I'm really keen for them to share their views on the segment. But first, let me set the scene with some numbers. And my colleague Katie Crawley in the Capital Advisory Group published a report on Multi‑Strategy. And according to the space in terms of size, as we see it expressed in assets under management, is estimated to be $595 billion at the end of 2025

That number will have gone up already this year substantially. That is a year‑on‑year increase of $92 billion, which is up 18%.

And that AUM growth can be broken down into $61 billion of performance and $31 billion of new inflows. And that is the highest that we've observed since we started to track the data in 2020 Performance for full year 25 across our group of multistratcs that we track was 11% last year. It was 11.8 at the end of 24 But interestingly larger funds outperformed. So the AUM weighted return was in fact closer to 12.5% last year. The spread of returns between cost‑pass‑through firms and non‑pass‑through firms narrowed last year. And we'll get into those terms and the significance of that a little bit later. Needless to say, the team here has seen a lot of interest in this space from our conversations with the full spectrum of investors. It's also a popular discussion topic for a number of reasons that we're going to get into. So Joe, kick us off. Why do you like multi‑strategy funds?

Joe Dowling (2:12)

I think fundamentally that the demand for multi‑strats and the demand for multi‑strats solutions stems from the underlying problem which is that stocks and bonds are correlated a lot more than investors think. If you look back over 50 years, it's 62% and that has risen since 2022

And obviously we know we live in a world that is very volatile, a world where deglobalization is happening, and that has resulted in a lot of winners and losers and a lot of volatility. And that's just the perfect weather for these strategies. And as an allocator, people are looking for something that's completely uncorrelated to stocks and bonds and multi‑strats are the solution. So I'm not surprised by your statistics.

Kumar Panja (3:07)

And as investors rethink this traditional 60-40 portfolios, what's the nature of the demand that you're seeing from your investors for multi‑strategy solutions?

Joe Dowling (3:15)

The demand is across the board for hedge funds in general. It's the number one asset class in 2026 for allocators, which I can never remember a time where that was the case. Can you, Riad?

Riad Abrahams (3:27)

Yeah, I think it's actually the second year in a row that hedge funds are the most sought‑after asset class. Within that, multi‑strats are obviously in huge demand. You quoted the growth over the last 12 months. If you zoom out, I think over the last five years, it's been… Yes, and that's compared to the rest of the industry at around 4%.

So I think this problem that traditional portfolios face, given the shift in the correlation regime, institutions recognize it and they're gravitating towards multi‑strategy solutions as the answer.

Kumar Panja (3:58)

How should investors be thinking about using multi‑strategy funds in their portfolio? Should they be using more of it? Do you think they are underweight currently?

Joe Dowling (4:07)

I definitely think people in general are underweight the asset class.

You can see some of the Ivy League endowments are actually now at 20% in their portfolios across the board. They're using it as a fixed income substitute in most cases. But if you look at allocations to multi‑strat, they're quite low. And I think people have a host of reasons to not like them. But the reality is that these firms have been delivering, especially the top ones, year after year after year, an uncorrelated double‑digit return with a high sharp. That is nirvana for investors.