Blackstone to shut multi-strategy fund after assets fall 90%

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Blackstone is to close a fund that offers investors exposure to a range of hedge funds and other trading strategies, after assets fell nearly 90 per cent in four years amid lacklustre returns.

The US alternative asset manager has told investors it will wind down the Blackstone Diversified Multi-Strategy fund by the end of the year, the group told the Financial Times.

The so-called Ucits fund is governed by EU rules that make it easier for non-specialist investors to buy. Multi-strategy Ucits funds such as this are in part an attempt by managers to capitalise on the success of giant hedge funds such as Citadel and Millennium, which employ teams of traders across a wide range of strategies and which were among the biggest hedge fund winners from the coronavirus pandemic.

The fund’s closure, which has not previously been reported, demonstrates how hard it can be to capture and package that success for a wide audience.

“I haven’t seen a multi-strat in Ucits format do well. Performance has not been good,” said Patrick Ghali, managing partner at Sussex Partners, which advises clients on fund investments.

Assets in the Blackstone fund, which allocates money to managers trading areas such as equities and credit, fell from £1.7bn at the end of December 2019 to £192mn on October 27 this year, according to data compiled by research firm Kepler Absolute Hedge.

From the start of 2020 to the end of last month, the fund has lost about 2 per cent in performance terms, according to investor documents. By comparison, hedge funds on average have gained roughly 21 per cent, according to data group HFR, while the MSCI World index of stocks has gained about 17 per cent in capital return terms.

The fall in assets under management partly reflects heavy investor outflows from the wider sector. Total assets in so-called multi-strategy mutual funds that are governed by Ucits rules have dropped 30 per cent in a year to £8.8bn, according to Kepler.

Demand for ways to capitalise on the success of large, multi-strategy hedge funds has come as Citadel became the most successful hedge fund firm of all time after making a record $16bn profit for investors last year. Multi-strategy funds in this space are designed to give clients exposure to the best traders across different firms while also spreading out risk.

But returns on Ucits versions of such funds are at times drab because of the constraints of regulations that govern how the funds invest and the access given to investors. For example, the rules dictate investors must be able to buy and sell their investments in the fund on a regular basis — with many such funds offering daily trading — while no single asset can take up more than 10 per cent of the fund’s assets under management. Direct short selling, which is used regularly by hedge funds, is banned, and there are limits on leverage and the amount of illiquid assets held by funds.

Blackstone’s fund invests with managers including New York-based Two Sigma, one of the world’s biggest quantitative hedge fund firms, Florida-based credit manager Bayview and London-based emerging markets manager Emso.

It also puts money with a number of managers in which Blackstone has a financial interest. These include Hong Kong-based Seiga Asset Management, Magnetar Asset Management and subsidiaries Blackstone Real Estate Special Situations Advisors and BX LCS.

Blackstone also directly runs a portion of the fund designed to hedge risk. The fund makes up less than 0.5 per cent of the group’s hedge fund solutions business.

Blackstone said: “This is a small, legacy fund. We are in talks with clients to move their capital to newer strategies that offer greater flexibility than the current structure allows.”

Other funds similar to Blackstone’s have also suffered falls in assets, including the Neuberger Berman Uncorrelated Strategies Fund, which has seen assets drop by £957mn in the 12 months to September 2023, and Franklin K2 Alternative Strategies, which has seen assets more than halve in the same period, according to Kepler.

Neuberger Berman and Franklin Templeton declined to comment.