Hedge fund investing has become increasingly institutionalized and resource-intensive, requiring access to specialized managers alongside deep due diligence, portfolio construction, risk management, and ongoing oversight capabilities. Managing roughly $36 billion allocated to external hedge fund strategies, HSBC Asset Management has built one of the world’s largest multi-strategy hedge fund platforms, with its flagship fund of hedge fund strategy marking its 30-year anniversary this year.

The strategy offers insight into how the team approaches manager selection, portfolio construction, and strategic allocation decisions. The strategy offers diversified exposure to approximately 25 to 30 underlying hedge funds across several broad strategy categories, combining top-down macro views with bottom-up manager selection. Behind the strategy sits HSBC Asset Management’s global hedge fund research platform, which forms the foundation of the investment process and supports both customized institutional mandates and the flagship fund of hedge fund strategy. 

A Global Research Platform Screening Thousands of Managers

“The engine room from an investment point of view is really the research team,” explains Tim Gascoigne, Senior Hedge Fund Investment Specialist at HSBC Asset Management’s Alternatives business. The broader hedge fund investment platform comprises approximately 42 professionals globally, including more than 20 specialists focused on investment and operational due diligence. These teams are based close to the major hedge fund hubs worldwide and collectively monitor more than 7,000 hedge funds across strategies and geographies.

The manager research process progressively narrows this global hedge fund universe into a curated buy list of around 120 approved managers. The process combines investment and operational due diligence with ongoing monitoring, aiming to identify managers capable of delivering persistent risk-adjusted returns across market environments.

“Since launch, it has delivered around 7.5 percent annualized returns. It is not only about diversification, but also long-term capital growth.”

Tim Gascoigne, Senior Hedge Fund Investment Specialist at HSBC Asset Management.

“The objective of the strategy is to provide an interesting absolute return with low beta and low correlation to other asset classes,” says Gascoigne. “Since launch, it has delivered around 7.5 percent annualized returns. It is not only about diversification, but also long-term capital growth.”

Combining Top-Down Allocation With Bottom-Up Manager Selection

While the research process starts with thousands of hedge funds globally, portfolio construction combines bottom-up manager selection with top-down strategic allocation views. The team groups hedge fund opportunities into broad categories including long/short equity, discretionary and systematic macro, equity market neutral, CTAs, event-driven strategies, and multi-manager platforms. They then adjust exposures depending on the market environment and forward-looking opportunity set.

“Once a quarter, we formally assess the opportunity set across strategies looking forward over the next six months,” explains Gascoigne. “That assessment is based on internal discussions, research work, and extensive dialogue with hedge fund managers.” The objective is to identify where market conditions create more favorable opportunities for specific hedge fund strategies.

“Once a quarter, we formally assess the opportunity set across strategies looking forward over the next six months. That assessment is based on internal discussions, research work, and extensive dialogue with hedge fund managers.”

Tim Gascoigne, Senior Hedge Fund Investment Specialist at HSBC Asset Management.

The team currently maintains constructive views on discretionary macro and equity market neutral strategies, against a backdrop of elevated geopolitical uncertainty, higher rates, and greater dispersion across markets. According to Gascoigne, the return of a more normalized rate environment has materially improved the opportunity set for several active hedge fund strategies that struggled during the ultra-low-rate period. “As rates have moved away from zero, the cost of capital matters again, which naturally creates differentiation across companies and sectors.”

Meanwhile, the team remains broadly neutral on CTAs, viewing them primarily as liquid diversifiers during stressed markets. “We don’t pretend that we can forecast the prevalence of trends across markets,” says Gascoigne. “But CTAs remain useful because they are liquid, directionally agnostic, and can provide diversification benefits during difficult market environments.”

The team also retains a constructive stance on event-driven strategies amid rising corporate activity, and is broadly neutral on credit strategies. Gascoigne notes that spreads have tightened meaningfully, reducing the overall opportunity set in traditional credit. Within the space, the team currently finds structured credit somewhat more compelling, given the ability to move higher up the capital structure while maintaining attractive returns. By contrast, opportunities in distressed credit look more limited at this stage of the cycle, with default activity and broader distress levels remaining relatively subdued.

Multi-manager platforms remain core holdings within the strategy, offering diversified sources of alpha and access to trading teams and strategies that can be difficult to access independently. “Large multi-PM firms have become increasingly important within the industry,” notes Gascoigne. “Many leading managers in that segment have been closed for years, which is where longstanding relationships and an established platform can help.”

Overall, the team maintains a neutral to positive view across most hedge fund strategy categories, reflecting what Gascoigne views as a more favourable environment for active hedge fund investing more broadly. He points to higher interest rates, elevated geopolitical uncertainty, greater dispersion across markets and rising levels of corporate activity as key factors shaping the opportunity set for managers. 

Black-Litterman and Portfolio Construction

Portfolio construction begins with a neutral allocation framework derived from hedge fund industry benchmarks using the Black-Litterman model, before incorporating HSBC Asset Management’s own strategic views to tilt allocations toward preferred strategies. “We start with an equilibrium portfolio and then adjust allocations based on our top-down views,” explains Gascoigne.

Even so, he emphasizes that manager selection remains the dominant driver of long-term returns. According to the team’s internal analysis, approximately 90 percent of HSBC AM’s fund of hedge fund strategy’s historical outperformance relative to the broader hedge fund composite index has come from bottom-up manager selection rather than tactical allocation shifts. “The vast majority of the value-add comes from identifying and accessing the right managers,” he says. “That’s really where the persistent edge has historically come from.”

“The vast majority of the value-add comes from identifying and accessing the right managers. That’s really where the persistent edge has historically come from.”

Tim Gascoigne, Senior Hedge Fund Investment Specialist at HSBC Asset Management.

Top-down positioning can be particularly important during periods of market volatility. Gascoigne points to 2022 as an example, when the team increased exposure to more defensive “risk-off” strategies such as macro, equity market neutral, and multi-manager platforms amid rising rates and simultaneous weakness across equities and fixed income. “That environment tended to favour strategies less dependent on traditional market beta,” he explains. “Having that tilt helped us generate positive performance in 2022.”

Scale, Longstanding Relationships, and Access

The hedge fund industry remains highly heterogeneous and operationally complex, making manager access, due diligence, portfolio construction, and ongoing monitoring critical components of successful investing. Having spent three decades investing in the space and built a platform overseeing roughly $36 billion allocated to external hedge funds, the team believes its scale and longstanding manager relationships provide a meaningful competitive advantage.

“When you have a product and a research platform that have been established for a long time, you naturally build relationships and access that are difficult to replicate.”

Tim Gascoigne, Senior Hedge Fund Investment Specialist at HSBC Asset Management.

According to Gascoigne, access remains one of the key differentiators within the industry. Approximately 70 percent of the holdings in the fund of hedge fund strategy are either hard-closed or soft-closed to new investors, including many of its largest underlying positions. “When you have a product and a research platform that have been established for a long time, you naturally build relationships and access that are difficult to replicate,” says Gascoigne. “The research platform is deep, and we also benefit from operating within a large global organization.”

For business enquiries feel free to reach out to Marija Vrgoc Kermer on +46 73 531 03 82 or email her marija.a.vrgoc@hsbc.com