Fri. Jun 2nd, 2023

hedge fund strategies blackrock

BlackRock Hedge Fund Strategies

BlackRock is one of the world’s largest and most diversified asset managers, offering alternative funds in multiple business lines with multiple strategies.

An important portion of that portfolio comprises hedge funds, which span product types like fixed income, equity hedge, global resources, macro, specialized alpha and UCITS-compliant funds.


Blackrock is one of the world’s premier investment management firms, overseeing nearly $9 trillion worth of assets under management. While much of that capital is invested in mutual funds and exchange-traded funds (ETFs), Blackrock also offers alternative investments, including hedge funds.

Blackrock’s hedge fund business has expanded across various business lines and strategies over time. Their hedge fund division accounts for almost half of Blackrock’s total assets under management; additionally, Blackrock continues to seek acquisition opportunities to strengthen their product range.

Long/short hedge fund strategies use multiple techniques to mitigate risk. One strategy involves investing in undervalued securities that the fund manager believes will increase in price while simultaneously shorting overvalued stocks to limit losses.

Even though long/short strategies tend to be more volatile than pure long positions, they can still provide an effective means of playing the market. Leveraging momentum and valuation factors as drivers of stock price changes is of vital importance when using such an approach.

Utilizing leverage can reduce the risks of long/short strategies by decreasing volatility and lowering investment requirements for each security. Leveraged strategies also have greater potential gains than straight long positions.

Therefore, it is crucial that you carefully consider whether a long/short strategy is suitable for your portfolio. As with all investments decisions, make sure it aligns with your overall financial goals and objectives.

Long/short strategies vary greatly in their approach to investing. Some investors may prefer strategies that invest in sectors and industries while others may favor market neutral funds that respond less to outside market conditions.

Long/short investing strategies such as event-driven or “EMN,” which involves shorting positions that are expected to move in one direction, can also be very lucrative and allow fund managers to capitalize on positive betas that help the fund perform well when markets go in one direction or the other.

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Event-driven hedge fund strategies seek to take advantage of temporary stock mispricings caused by major corporate events like mergers and acquisitions, bankruptcy proceedings, spinoffs or any other major changes. Such strategies require extensive expertise as they must analyze these events from different perspectives before suggesting potential actions for each case.

Blackrock, a global investment management firm, boasts a selection of funds focusing on event-driven investing. BlackRock Event Driven Equity (BALPX), for instance, received nearly $2.3 billion last year as new capital came in; other funds also saw substantial inflows.

This strategy invests primarily in equity securities and a smaller percentage in debt securities, with some exposure to distressed credit opportunities like loan agreements negotiated between BlackRock and a company for financing purposes or short-term IOUs held by them for short duration.

Mark McKenna, who heads the fund, works closely with an analyst team to research events at companies which may impact share prices. They may utilize news reports, earnings calls and meetings with company executives in their research efforts.

McKenna uses his research to identify companies that are experiencing changes or have the potential for such transformation. These can include spinoffs, acquisitions or restructuring. For instance, some recent examples are Danaher and Coty who have announced significant restructuring changes within their businesses.

Even with the recent downturn, event-driven hedge funds are performing better. While competition for players may have driven out some, others have seen increased assets and interest as an added advantage.

Credit arbitrage has shown impressive gains according to Raymond C. Nolte, chief investment officer of SkyBridge Capital Management II LLC of New York. Nolte reported that asset levels remain relatively steady while interest in credit arbitrage has grown in some regions even as overall performance declines.

Merger arbitrage is another popular event-driven strategy. This involves buying shares of an target company before it completes an acquisition deal and selling them after completion if their value rises more than that of the acquiring firm’s. When complete, merger arbitrage may prove profitable when target stock rises above acquirer firm shares after transaction closes.

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Sector Specific

BlackRock is one of the world’s premier providers of hedge fund strategies, offering investors access to an array of funds designed to cover specific sector or event-driven options.

Hedge fund strategies that offer diversification across sectors can help investors better assess the risks and returns associated with their investments. For instance, healthcare funds might include medical technology companies and insurance providers while aerospace and aviation funds might include aircraft manufacturers.

Funds that invest across sectors have several distinct advantages over single sector funds: They reduce portfolio risk while simultaneously being better at capturing value than funds invested in one specific area; since each business within a sector presents different characteristics and risks.

Sector-specific strategies also benefit investors who have an extended time horizon, making them especially suitable for retirement accounts or assets that should be drawn down during retirement or when an investor no longer needs the capital from work.

BlackRock’s sector-specific hedge funds may appeal to smaller investor bases; however, other strategies designed for more sophisticated and larger investors offer greater diversification and often have longer investment horizons than those mentioned previously.

LifePath Target Date and Target Risk series is designed to balance risk with return over an investor’s expected retirement horizon, using allocation models and expert beta exposure selection in order to help manage risk effectively.

Sectors are groups of industries with similar business practices and product or service offerings, financial results and management teams. While their sizes and complexity may differ greatly, all sectors share some similar aspects such as product or service offerings, financial results and management teams.

So they can easily be analyzed and compared against one another, giving investors the ability to easily spot companies poised for future success and those which might experience issues.

BlackRock provides numerous sector-specific options, with energy as a primary focus. Their industry allocation model determines which stocks best align with portfolio goals; additionally, some sectors have value tilting strategies implemented that aim to mitigate portfolio risk.

Market Neutral

Market neutral funds aim to achieve above-market returns with lower risk by hedging bullish stock picks with an equivalent but diversified number of short bets, and earning some income from interest earned on short sales proceeds.

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Market neutral investing’s main advantage lies in its greater resilience against changes to the overall market than other investment strategies, protecting investors from losses caused by downturns and providing some insurance against upturns. However, market neutral hedge fund strategies may not be suitable for everyone as they can be more costly to run and can lead to higher capital gains tax liabilities should securities sold at a profit be sold off later.

Market neutral strategies differ from traditional long and short portfolios in that their components require constant rebalancing to achieve optimal performance. This increases costs of running these strategies, as well as necessitating managers to be highly experienced to generate sufficient outperformance.

Old Mutual Global Investors’ GEAR strategy, a systematic global equity market neutral strategy, has produced some of the highest and most consistent risk-adjusted returns among market neutral strategies. Achieving an impressive Sharpe ratio of just under one, GEAR outperformed peers while charging lower fees than their rivals.

GEAR has generated the highest returns across Europe and Asia Pacific since 2009. Its low fee structure of 0.75% may have helped it outperform peer funds with higher costs.

Market neutral strategies strive for zero beta to minimize systematic or market-wide risks, with long portfolio risk profiles mirroring those of short portfolios – an often difficult goal.

Market neutral hedge funds typically experience high turnover due to the constant re-balancing required between their long and short portfolios, leading to greater capital gains tax liabilities upon selling securities at a profit.

Jeffrey Augers
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By Jeffrey Augers

Jeffrey Augers is a highly skilled and experienced financial analyst with over 12 years of experience in the finance industry. He has a proven track record of delivering exceptional financial insights and recommendations to clients, empowering them to make informed decisions and achieve their financial goals. Jeffrey holds a Bachelor's degree in Finance from the University of Michigan, and an MBA from the Wharton School of Business.