There is no question over the appeal of a broadly diversified investment strategy in today’s environment.
Uncorrelated returns, access to a wider set of asset classes and more extreme concentration limits are just some of the reasons investors turn to hedge fund strategies to bolster overall performance.
Yet investors across the continent face limitations under the UCITS rules imposed by the European Commission.
The hedge fund universe comprises more than 10,000 funds and is worth almost $3trn, yet those falling within the UCITS framework represent just 7% of that total.
Perhaps more importantly, they have historically underperformed their non-UCITS peers - by 53% 2006, with an equity bias partly to blame. Further, many of the top-performing US-based hedge fund managers with high inflows have shown a broad indifference to engage with the UCITS rulebook, conversely, some of their substandard peers have been inclined towards Europe as they chase assets in the hope of standing out in a less competitive pool.
Given the significant disparity between high-quality and low quality managers and the number of niche managers who sit below the radar, BlackRock Alternative Advisors (BAA) relies on its 21-year track record to research and identify managers who are best-in-class for their six-pronged sub-advised strategy.
A blend of fundamental long/short, global macro, managed futures, relative value and event driven, investors in the retail and wealth management space can now harness the expertise once solely the domain of those institutional investors participating in the hedge fund world. Yet as sub-advisors running mandates in a UCITS fund, not only are the doors opened, but the fees are also controlled.
From an initial universe of more than 10,000 funds that exist, 8,000 of these are present on the hedge fund databases. We funnel these down to 140 managers that we use as building blocks across our various BAA strategies.
We assess on a number of factors: investment skill and expertise; opportunity set for each strategy; idea generation; portfolio construction methodology; risk management processes and systems; operational infrastructure; organisational stability and internal controls; alignment of incentives; and portfolio and performance review.
Only 50 managers will be categorised as top tier, who will then be interrogated qualitatively by the research team, quantitatively by the risk team, and go through a thorough background check and control carried out by operational and due diligence.
Once we establish the right ‘fit’ at group level, 6-12 individual managers are selected for their investment acumen, integrity, risk management capability, stability and how complementary their opportunity set is to that of the others selected.
Fund specific risks
Exchange rate risk - Overseas investment will be affected by movements in currency exchange rates. Complex derivative techniques (absolute return) - The strategies utilised by the Fund involve the use of derivatives to facilitate certain investment management techniques including the establishment of both 'long' and 'synthetic short' positions and creation of market leverage for the purposes of increasing the economic exposure of a Fund beyond the value of its net assets. The use of derivatives in this manner may have the effect of increasing the overall risk profile of the Funds. Investors in this fund should understand that the Fund is not guaranteed to produce a positive return and as an absolute return product, performance may not move in line with general stock market trends as both positive and negative share movements affect the overall value of the fund. The Manager employs a risk management process to oversee and manage derivative exposure within the Fund. Financial Markets, Counterparties and Service Providers - The insolvency of any institutions providing services such as safekeeping of assets or acting as counterparty to derivatives or other instruments, may expose the Fund to financial loss.
The BlackRock Strategic Funds (BSF) Multi-Manager Alternatives Strategies Fund is domiciled in Luxembourg. BlackRock Asset Management Schweiz AG, Bahnhofstrasse 39, CH-8001 Zurich, is the Swiss Representative and State Street Bank International GmbH, Munich, Zurich Branch, Beethovenstrasse 19, CH-8002 Zurich, the Swiss Paying Agent. The Prospectus, Key Investor Information Document, the Articles of Incorporation, the latest and any previous annual and semi-annual reports are available free of charge from the Swiss Representative. Investors should read the fund specific risks in the Key Investor Information Document and the Prospectus.
BlackRock Strategic Funds (BSF) is an open-ended investment company established and domiciled in Luxembourg which is available for sale in certain jurisdictions only. BSF is not available for sale in the U.S. or to U.S. persons. Product information concerning BSF should not be published in the U.S. It is recognised under Section 264 of the Financial Services and Markets Act 2000. BlackRock Investment Management (UK) Limited is the UK distributor of BSF. Most of the protections provided by the UK regulatory system, and the compensation under the Financial Services Compensation Scheme, will not be available. A limited range of BSF sub-funds have a reporting fund status A sterling share class that seeks to comply with UK Reporting Fund Status requirements. Subscriptions in BSF are valid only if made on the basis of the current Prospectus, the most recent financial reports and the Key Investor Information Document, which are available on our website. Prospectuses, Key Investor Information Documents and application forms may not be available to investors in certain jurisdictions where the Fund in question has not been authorised.