FoFs Manage Historically Low Percentage Of HF Assets

Jul 2 2012 | 12:55pm ET

Funds of hedge funds managed a historically low percentage of overall hedge fund assets in Q1 2012 according to research from eVestment|HFN.

Funds of funds accounted for only 36% of assets in hedge funds at the end of the first quarter, down from 38% at the same time last year and 49% three years ago. Funds of funds managed an estimated $909.8 billion as of March 2012, compared to total hedge fund AUM of an estimated at $2.554 trillion.

eVestment|HFN’s analysis shows that in the first three months of 2012, investors poured a net $31.4 billion into hedge funds while redeeming a net $7.3 billion from funds of funds.

Moreover, in the last quarter of 2011, investor redemptions from funds of funds outpaced redemptions from hedge funds. For this same time period, investors redeemed a net $22.7 billion from hedge funds while $34.7 billion was taken out of funds of funds.

“To an evolving landscape of hedge fund investors, it is increasingly difficult to showcase a clear, superior value provided by funds of funds, specifically using performance comparisons over every possible sub-classification, to other methods of accessing the industry.” said Peter Laurelli, vice president, research, eVestment Alliance, “Fund of funds’ core strength of single investment diversification to the hedge fund industry is moving towards a niche role as larger allocators to the industry become more comfortable investing directly, or working with consultants who may already be employed for traditional portfolios.”

The last time funds of funds experienced two consecutive quarters where outflows exceeded those of hedge funds and hedge fund inflows were positive while those of funds of funds were negative was Q2 and Q3 2009. A time when, according to eVestment|HFN, funds of funds were “facing difficult questions concerning the magnitude of losses during the financial crisis compared to the hedge fund industry, the surprising lack of liquidity the structures provided during times of distress and the apparent lack of due diligence that led some to investment in certain fraudulent funds or feeders.”

The eVestment database contains information on 2,552 unique funds of funds of which 34 are UCITS compliant.



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