Beta Overlay, Beta One and Portable Alpha Strategies for Multi-Manager Platform Funds

Multi-manager platform funds, which seek to generate superior risk-adjusted returns – or “alpha” – by allocating capital to multiple portfolio managers who trade independently across a broad spectrum of strategies, remain popular among hedge fund investors. These funds offer access to specialized talent, diversification against market or systemic risk, and centralized risk management. They also tend to be cash efficient and thus have significant amounts of available cash. As a result of these features, we are seeing a trend among multi-manager platform funds to supplement their core (“pure alpha”) strategies with “beta overlay” (sometimes also referred to as “beta one” or “portable alpha”) products that use available cash to add targeted overall market exposure – or “beta” – to their core strategies. In this article, we examine some of the structuring and legal considerations that fund managers should consider when offering these products.

Click here to read the full article which ran in The Hedge Fund Law Journal on November 1, 2024.