FoFs See Better Performance, Continued Redemptions In '13

Jan 3 2014 | 12:46pm ET

It seems funds of hedge funds just can't catch a break: even as performance has rebounded, investors continue to pull money from the multi-manager vehicles in the first nine months of 2013.

According to data provider eVestment's annual Funds of Hedge Funds report, investors have pulled money from FoFs for nine consecutive quarters and the commingled vehicles now account for just 32% of total hedge fund industry assets under management—and all-time low. As of end-September 2013, funds of funds managed an estimated US$876.7 billion.

But performance-wise, funds of hedge funds were up 6.59% YTD through October, only slightly behind single-manager hedge funds, which were up 7.50% over the same period. (And both, of course, well behind the booming stock market).

Moreover, average volatility was lower for FoFs than for single-manager hedge funds during the last 12 months (4.82% versus 8.60%) and multi-manager vehicles have overtaken single-manager vehicles in risk-adjusted performance returns—over the last five years, the average hedge fund exhibited an annualized Sharpe ratio which was 0.15 higher than the average FoF's, but during the last 12 months, the average FoF had a Sharpe ratio which was 0.40 higher.

The survey, which drew on eVestment's database of 2,458 FoFs, also found that emerging manager fund of funds outperformed their non-emerging manager peers in 2013, continuing a trend first noticed in 2003.

FoFs investing in hedge funds focused on European markets outperformed their respective single-manager hedge fund benchmarks and multi-strategy hedge funds and those targeting credit strategies have been able to outperform the universe of hedge funds for each category.

That said, the survey also found evidence that FoFs’ additional offerings, particularly bespoke portfolios for institutional clients, have offset some of the redemptions from commingled products. The Q2 2013 survey reported a FoF AUM increase of 2.9% versus a decline of 0.5% for pooled products.


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