Multi-Strategy Fund
Also written Multi-strategy Funds · Multistrategy Fund
A hedge fund, more common in European markets, that deploys several investment strategies within a single fund scheme rather than running one strategy alone.
In plain language
The workbook usually describes a Category III AIF strategy on its own — long-only, long-short, global macro, convertible arbitrage. It talks as if a fund runs just one of these at a time. A Multi-strategy Fund breaks that pattern. It is a hedge fund that runs several of these strategies together, inside a single scheme.
How it works
The workbook contrasts North American and European hedge fund markets directly: in North America, Fund of Funds and Commodity Trading Advisors are especially common alongside equity-based strategies, while in the European markets, Multi-strategy Funds have got more traction, apart from traditional equity and fixed-income strategies.
The stated benefit is twofold: diversification, because the fund is not relying on a single strategy to generate returns, and fee control, because investors are not paying an additional layer of manager fees the way they would through a Fund of Funds structure that invests in several separately-managed funds, each charging its own management fee, on top of the Fund of Funds' own fee.
A worked example
Meridian Multi-Strategy Fund, a Category III AIF with Rs 200 crore of assets, allocates its book across three strategies run by the same investment team: Rs 90 crore to a long-short equity strategy, Rs 70 crore to a global macro strategy in currency and interest-rate futures, and Rs 40 crore to a convertible arbitrage strategy in corporate bonds.
Because all three strategies sit inside one scheme, investors pay a single layer of management and incentive fees on the Rs 200 crore, computed on the combined fund performance — unlike a Fund of Funds investor, who would separately bear the underlying managers' fees on each of the three strategies and an additional fee layer charged by the Fund of Funds manager on top.
If the long-short book has a poor quarter while the global macro book performs strongly, the fund's single NAV blends both outcomes — diversification working at the fund level rather than requiring the investor to hold three separate funds to get the same spread of exposure.
Why NISM asks about it
Chapter 3, section 3.6 (Hedge Funds: Global Market Overview), places Multi-strategy Funds directly against Commodity Trading Advisors and Fund of Funds as a market-comparison point between Europe and North America. Expect this contrast tested directly, and the fee-layering rationale (single management fee versus the Fund of Funds' double layer) tested as the reason investors might prefer a multi-strategy structure.
Common exam traps
- Multi-strategy Funds are associated with European markets in the workbook's comparison; CTAs and Fund of Funds with North America. This pairing is a specific, testable contrast.
- A multi-strategy fund is not the same as a Fund of Funds. A multi-strategy fund runs several strategies itself, in-house, in one scheme; a Fund of Funds invests investor money into several other funds, each independently managed and independently charging fees.
- Diversification across strategies inside one fund does not eliminate risk — it spreads the sources of return and loss, which is a different thing from reducing overall volatility to zero.
Check yourself
1.A family office compares a global Fund of Funds (FoF) with a Multi-strategy Fund. Which statement is correct?
- a)A FoF charges lower fees than a single-strategy hedge fund because it negotiates bulk discounts
- b)A Multi-strategy Fund invests in other hedge funds, each running a different strategy
- c)A FoF's fees are substantially higher because of the underlying funds' fees plus the FoF manager's own layer; a Multi-strategy Fund runs several strategies within one scheme and controls the fee pay-out
- d)Managed Futures strategies run by CTAs have gained the most traction in European markets
Show the answer
Answer: (c) A FoF's fees are substantially higher because of the underlying funds' fees plus the FoF manager's own layer; a Multi-strategy Fund runs several strategies within one scheme and controls the fee pay-out
A Fund of Funds invests in other hedge funds. It diversifies across strategies, but "the fees charged by a FoF are substantially high as compared to single-strategy hedge funds", because investors pay management fees charged by every hedge fund and the additional layer of management fees charged by FoF manager. That makes option (a) the opposite of the truth. Multi-strategy Funds "deploy multiple investment strategies, within the same fund scheme". They diversify "as well as controls the pay-out of management fees", so option (b) describes a FoF instead. Option (d) is wrong because FoFs and CTAs are common in North American markets, while Multi-strategy Funds have more traction in European markets. CTAs are registered with the National Futures Association (NFA) in the USA.
Where this is taught
- Series XIX-B · Chapter 3: Introduction to Category III AIF Ecosystemintroduced here
- Series XIX-C · Chapter 2: Types of Investmentsintroduced here
Related terms
- Category III AIFThe AIF category for funds running diverse or complex trading strategies with leverage — hedge funds and their kin — and the only category denied tax pass-through status.
- Commodity Trading AdvisorA category of fund manager, common in North American hedge fund markets, that runs a "Managed Futures" strategy in commodity, equity and currency futures using systematic or discretionary methods.
- Global-Macro StrategyA Category III AIF strategy taking long and short positions across currencies, fixed income, equities, commodities, real assets and interest rate derivatives, driven by macro-economic trends.
- Long-Short Equity StrategyA Category III AIF strategy that buys stocks the manager thinks are under-priced and shorts those it thinks are over-priced — often run as a 130/30 fund with 100% net market exposure.