The advisor behind the curtain

If someone had told me a few years ago that I’d end up working inside a hedge fund manager, I probably would’ve raised an eyebrow. Like most financial advisors, I was focused on good planning, solid diversification, and keeping clients from making emotional decisions at exactly the wrong time.

For many financial planning firms, hedge funds can feel like a black box – complex, expensive, and maybe a little too far from the fiduciary mindset. But I’ve found that when used thoughtfully, hedge funds can be a powerful addition to your advice process, not as a silver bullet, but as a stabiliser, a diversifier, and sometimes even a psychological anchor for clients navigating uncertainty.

When most people hear the term hedge fund, they imagine high-stakes trading floors, mysterious algorithms, and ultra-wealthy investors hidden behind layers of exclusivity. What’s often missing from that picture is the role of the financial advisor, the translator between institutional complexity and individual investor goals.

So let me ask – have you ever had a client ask for growth but panic at the first whiff of volatility?

Or one sitting on too much cash, paralysed by indecision?

If so, hedge funds might be more relevant to your advice process than you think.

When I first started working with high-net-worth clients, hedge funds weren’t front and centre in my planning process. Like many advisors, I led with goal-based planning, traditional diversification, and low-cost core portfolios. That approach still has its merits. But as clients’ needs became more complex and as public markets became more correlated, I realised I needed access to more levers.

That’s what brought me into the hedge fund space. Not to chase alpha, but to better understand how alternative strategies could serve real-world clients with real-world fears. Concerns about sequence of return risk, rising interest rates, political instability, concentrated equity exposure, or simply the desire to sleep better at night. The world of hedge funds isn’t some secretive enclave; it’s a toolkit – one with both sharp edges and powerful utility.

What hedge funds really do in a portfolio

Most of my conversations around hedge funds begin with education, not performance charts.

There’s often a perception that hedge funds are about outperformance, but in my experience, that’s a misleading starting point. What they’re really about is reshaping the return experience. I’ve learned that the true benefit of hedge funds isn’t about chasing alpha, it’s about managing behavioural risk.

Here are three ways I’ve seen hedge funds used effectively in financial planning contexts.

1. Smoothing the client journey
   Have you ever had a client abandon their plan during a downturn, despite all the work you did to prepare them for volatility? Hedge funds won’t prevent fear, but they can reduce the peaks and troughs that trigger it, making it easier for clients to stay invested through uncertainty.
2. Offering true diversification
   We all talk about diversification, but in moments of crisis, correlations tend to spike across traditional assets. Peregrine Capital’s portfolios are designed to behave differently by using shorting, pair trades, and other non-directional strategies. It’s diversification that works when you need it.
3. Filling the gaps in traditional portfolios
   In many client portfolios, investors are overexposed to equity beta or sitting on excess cash. Hedge funds offer a flexible middle ground: active, risk-aware strategies that aim for consistent returns without relying on rising markets. It’s not about being aggressive – it’s about being intentional.

Bridging the gap: From complexity to clarity

To me, hedge funds aren’t about complexity for complexity’s sake. They’re about having more tools to serve clients’ needs, especially as those needs become more nuanced.

Advisors want to be more than asset allocators, and if they aim to be true portfolio architects, then understanding when and how to use alternatives becomes part of their responsibility. Not because you’re trying to ‘beat the market’, but because you’re trying to build portfolios that behave thoughtfully through all kinds of markets.

At the end of the day, my role isn’t to convince clients that hedge funds are the answer. It is to explore whether they might form part of the answer – to risk, to behaviour, to diversification, and to the long journey of preserving and growing wealth across generations.

If you’ve been curious, or sceptical, I’d encourage you to revisit the space. The landscape has changed. The tools are more accessible. And in a world of increased client expectations, regulatory pressure, and volatile markets, the advisors who embrace a broader toolkit will be best positioned to lead.

In the words of Ray Dalio, the founder of Bridgewater Associates: “The best hedge fund managers don’t just take risk, they manage it with precision. That’s where the real skill lies.”

Grant Dixon is an investment analyst at Peregrine Capital.

**Disclaimer

The information and data presented above are for illustrative purposes only and do not constitute financial advice, a recommendation, or an offer to invest. Performance figures reflect returns over a 10-year period ending 30 April 2025. Past performance is not necessarily a guide to future performance. Performance is calculated by Peregrine Capital (Pty) Ltd using data sourced from Morningstar, Bloomberg, and other third-party providers. Benchmarks are defined according to FTSE/JSE Capped SWIX (equity) and FTSE/JSE All Bond Index (bonds) methodologies. Details available on request.

Hedge fund investments, such as those referenced under the “Hedge” allocations, are generally subject to higher risk and volatility than traditional investment portfolios. These funds may employ leverage, short selling, and other complex strategies that may amplify both gains and losses. Investors should ensure they understand the risks involved and consult with a licensed financial advisor before making any investment decisions. Peregrine Capital (Pty) Ltd is an authorised financial services provider (FSP No. 607) licensed under the Financial Advisory and Intermediary Services Act of South Africa. The company manages portfolios that may include both traditional and alternative assets, including hedge funds.

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