Survey Says Average Size Of FoFs Down 50% Since 2009

Apr 18 2011 | 12:22pm ET

Funds of funds are shrinking, according to the latest research from Preqin.

Current fund of hedge funds data shows the mean fund of hedge funds currently manages $2.18 billion, compared to $2.75 billion in 2010 and $4.78 billion in 2009.

The alternative asset research provider says AUM in the overall fund of funds industry has dropped from $1.25 trillion in 2008 to $910 billion as of Q2 2011.

The research, based on Preqin’s data on roughly 550 funds of funds, shows a significant decline in the number of hedge fund of funds managers with AUM between $2 billion and $5 billion, while those with less than $250 million in assets now account for a larger proportion of managers in the industry.

Preqin blames the changes in the industry on fraudster Bernie Madoff, saying investor caution has increased in the wake of his multi-billion Ponzi scheme.

Preqin says the biggest decline in industry AUM occurred between 2008 and 2009, when assets fell 24%. The proportion of fund of hedge funds managers with less than $250 million in AUM has increased from 28% in early 2010 to 35% in Q2 2011. Preqin warns that if AUM continue to increase as it has done thus far, AUM could increase to $950 billion by year-end. 

The research provider also found that an increasing number of fund of hedge funds managers were planning to launch niche, multi-strategy funds in 2011 to satisfy investor demand for increased transparency and liquidity.

“The fund of funds landscape is markedly different to the pre-crisis industry,” said Preqin’s Amy Bensted, manager of hedge fund data. “Assets under management for the industry as a whole are much lower and there is a bimodal distribution of firms emerging, with peaks at the lower end of the scale as the smaller niche boutiques appeal to the maturing hedge fund investors, and at the larger end of the spectrum the ‘brand name’ multi-strategy firms still prove appealing to the newer investor. After a difficult few years for funds of hedge funds, the managers that have appropriately adapted to retain investors from the institutional market have regained some lost confidence, and numerous new funds are poised to be launched this year. Growth of industry assets is again in positive territory and if this new era of revived investor interest in funds of funds continues then aggregate AUM will begin to climb towards the $1 billion mark.”


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