Investors have searched for higher, stable returns and enhanced diversification amid volatile markets, rocked by geopolitical crises that have created supply and inflationary shocks that threaten interest rate increases. Moreover, after two decades of a negative correlation between stock and bond prices, the stock-bond diversification has become less reliable during some recent periods of market stress, damaging balanced portfolios.
Increasingly, both individual and institutional investors have turned to hedge funds to manage volatility and find alternative sources of risk-adjusted returns with lower dependence on the direction of traditional equity and bond markets.
“We believe that elevated equity and credit dispersion, low stock correlations and diverging rates, currencies and commodities create a potentially productive environment for long/short, relative-value, macro and volatility strategies,” Dongyue Zhang, head of investment specialists APAC, multi-asset, alternatives and QIS, Aberdeen Investments, told FSA.
Aberdeen Investments’ answer is to set up a fund of hedge funds to provide clients with access to leading hedge fund managers with a variety of strategies.
Hedge fund legends
The “Hedge Fund Legends” is a proposed, concentrated multi-manager hedge fund portfolio designed to give investors access to a select group of established, highly regarded and often capacity-constrained hedge fund managers.
“We expect to launch the fund within the coming months, initially targeting cornerstone distributors such as private banks in Asia. Given the limited capacity, we expect strong demand and a potentially brief fundraising period”.
“Rather than selecting managers on reputation alone, we will focus on those with a durable investment process, a proven ability to generate differentiated risk-adjusted returns, and a clear role within the overall portfolio,” Zhang (pictured) said.
“A multi-manager structure can diversify alpha sources and reduce dependence on any individual strategy or market direction. It may also provide more operational convenience and lower capital fragmentation than building separate direct relationships,” he added.
Currently, Aberdeen oversees $18.8bn across active hedge funds, passive hedge funds and alternative credit as of June 2026, with more than 25 years of research-driven experience and more than 20 dedicated professionals, based principally in New York and London.
Based in Hong Kong, Zhang works closely with institutional and intermediary clients in Asia Pacific, providing investment insights and portfolio solutions across private markets, hedge funds, multi-asset strategies and quantitative investment strategies.
This new vehicle is intended to draw on Aberdeen’s longstanding manager relationships and existing hedge fund platform to secure and preserve access to established managers that can be difficult for new investors to access efficiently..
“The new fund will feature a concentrated group of eight to 10 managers, including Capula GRV, a fixed-income relative value fund, and Millennium, a multi-strategy fund, subject to final due diligence, capacity confirmation, and portfolio construction decisions.”
This fund is designed to pursue differentiated absolute return rather than regular income. Capula and Millennium, for example, are process-driven organisations, with Millennium operating a multi-portfolio manager platform, comprising around 300 individual managers, and Capula specialising in fixed-income relative value strategies.
For this fund of funds, Aberdeen Investments is offering a single strategy, but it is considering launching additional products in the future.
Portfolio construction
In addition to manager selection, Aberdeen focuses on robust portfolio construction, research, and underwriting to ensure a disciplined investment process supported by a strong platform and risk management. “Our approach combines access to top managers with meticulous portfolio engineering,” Zhang said.
The portfolio is expected to combine complementary sources of alpha across multi-strategy, equity market-neutral, credit relative-value, systematic macro, and event driven strategies. “Each manager will have a distinct portfolio purpose, and allocation will be sized to optimise risk, liquidity, conviction, capacity and diversification contribution rather than equal weighting.,” Zhang said.
“Aberdeen will be responsible for manager selection and due diligence, portfolio construction and sizing, liquidity and risk oversight, and ongoing monitoring.”he added.
“The conventional wisdom is that hedge funds are opaque,” said Zhang. “However, our manager research, independent operational due diligence, portfolio-level risk monitoring and ongoing engagement are designed to give us a robust view of each manager’s process, exposures, liquidity and operational robustness. Diversification is assessed by strategy, risk factor and return driver – not simply by counting managers. Our system allows us to monitor for overlapping positions and manage risk exposures, including those related to geopolitical events.”
Active management
Importantly, the portfolio will be relatively stable, but not static: Aberdeen will invest with long-term conviction while continually assessing manager fundamentals, opportunity set, capacity, liquidity, risk and portfolio fit,, with the objective of delivering attractive risk-adjusted absolute returns with low dependence on the direction of traditional equity and bond markets. The result is an optimized portfolio.
“We address common concerns about hedge funds, such as transparency, due diligence, and risk management, through rigorous oversight at both the firm and manager levels. Our offering is suitable for institutional, accredited, and professional investors,” Zhang said.
Fees have not yet been confirmed, but are expected to be kept competitive to give investors cost-efficient access to a select group of leading hedge funds.. “We believe fees are justified by the value-added services we provide, including access to capacity-constrained managers, portfolio construction and active portfolio management,” said Zhang.
The target return for this fund is an absolute US dollar return of cash plus 5%. The fund’s target size is approximately $200m, and it will be open to both institutional and private banking clients, particularly in Asia.
“We have strong relationships with private banks and fund selectors in the region, and feedback indicates significant interest in alternatives, especially hedge funds, as clients seek diversification beyond traditional equities and bonds”.
The main benefit is a single access route to managers that may be capacity constrained or impractical to assemble independently. Aberdeen would undertake manager sourcing, investment and operational due diligence, portfolio construction, subscription and redemption administration, ongoing exposure monitoring and rebalancing.
“Investors will not only benefit from simply access to prestigious names, but access plus selection, interaction analysis, sizing, liquidity management and continuous oversight,” Zhang said.