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1 minutes to read by  F.Franklin, BlueBay Fixed Income Team Apr 28, 2026

Findlay Franklin, Portfolio Manager for Multi-Asset Credit, discusses how hedge fund convexity characteristics can provide the building blocks for tailored hedge fund solutions.

Key takeaways:

  • Hedge funds have long been seen as a potential source of portfolio diversification. However, different hedge fund strategies can exhibit very different correlation patterns to traditional assets. To understand those differences, measuring correlation can be a good starting point, but it does not fully explain how diversification can change.

  • A useful complement to correlation is to think about convexity, which captures how different hedge fund return profiles may respond as market moves become larger or more stressed. Looking across three broad payoff archetypes – namely directional, relative value, and macro – convexity can help explain why strategies that appear similarly diversifying in calmer conditions may behave very differently when markets are under pressure.

  • With customized hedge fund solutions, clients can tilt towards return profiles with convexity characteristics that may help deliver the type of diversification they are seeking, while remaining aligned with broader portfolio construction and evolving risk and return appetite.
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