September 2008
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September 25, 2008
Bright spot in the dark
In a year of seemingly endless bad news for hedge funds, many hedge-fund-of-funds managers, especially institutionally focused firms, actually thrived.
Assets of hedge-fund-of-funds managers in sister publication's Pensions & Investments' second annual survey rose 31% to $708.8 billion as of June 30, from $542 billion a year earlier. Assets managed in such funds for institutional investors worldwide rose 51% to $462 billion as of June 30, and assets managed for U.S. institutional investors were up 27% from a year earlier, to $124 billion.
Institutions are a growing client base for the largest funds of funds.
In aggregate, 65% of total hedge-fund-of-funds assets were managed for institutions worldwide, compared with 56% a year earlier. U.S. institutional assets dropped slightly to 22% of assets, from 23% last year.
The growth, especially in assets managed for institutional investors, bucks a massive industrywide slowdown in net flows. Hedge-fund-of-funds flows were down 76% to $29 billion in the first half of the year, versus $199 billion for the first six months of 2007, according to Hedge Fund Research Inc. of Chicago.
Merely hanging on to assets was a fairly remarkable feat for fund-of-funds managers, given that underlying hedge funds in their portfolios sustained their worst performance since record keeping began, as evidenced by the -0.75% return in the HFRI Fund Weighted Composite index for the first half of this year.
In fact, 38 of the 54 fund-of-funds managers included in both the 2008 and 2007 P&I hedge-fund-of-funds manager surveys had strong growth, both as a group and individually. SEI Investments Co. of Oaks, Pa., for example, showed the strongest growth in a year-to-year comparison, with a 77% increase to $1.9 billion, followed by Cadogan Management LLC of New York, which jumped 66% to $7.4 billion, and Evanston (Ill.) Capital Management LLC, which rose 58% to $3.3 billion as of June 30.
Just 13 of those firms participating in both years reported a dip in assets, mostly modest single-digit drops. The biggest drop was sustained by London-based La Fayette Investment Management (U.K.) Ltd., whose assets managed in funds of funds dropped 26% to $3.9 billion from a year earlier.
"P&I's data confirms that investors remain committed to hedge funds of funds. We continue to chuckle about conversations we were having six or seven years ago with people who predicted that hedge funds of funds would be disintermediated, falling out of favor with institutional investors who would be moving in droves to direct hedge fund investing," said money manager consultant Kevin P. Quirk, founding partner and principal of Casey Quirk & Associates LLC in Darien, Conn.
"As we've been saying for some years now, many institutions prefer to work with an expert intermediary, a professional who is equipped to manage a diverse portfolio of hedge funds," he said.
"Given recent market conditions that have punished many hedge funds, fund-of-funds managers that can navigate difficult conditions are even more in demand. I don't see a lot of cracks in the hedge fund-of-funds manager-client relationship right now," Mr. Quirk said.
-Investment News-
Posted by su at 9:55 AM