FoHFs Will Need To Change To Keep Share

Date: Thursday, November 16, 2006
Author: Dailyii.com

As institutional investors become more confident and bolder about hedge funds, the more they’re going to invest in the vehicle directly, says consultant Kevin Quirk, and that may not bode well for funds of hedge funds. Speaking on the second day of the Global Alternative Investment Management conference, Quirk, a partner with Casey, Quirk & Associates, said funds of hedge funds could see their share of the market shrink unless they offer investors more to justify the extra layer of fees they charge above the standard ones by hedge funds. Right now, he says, FoHFs are the vehicle of choice by a great majority of institutional investors that are getting their feet wet in the industry for the first time, but in another four years, investment in hedge funds and FoHFs will be about evenly divided. One way funds of hedge funds may satisfy these institutional investors – with 65% of all their inflows coming from pension plan -- is to offer more bespoke advice and consultancy services, suggests Quirk.  Even so, institutional investors are increasingly devoting a lot more money to developing hedge fund expertise in-house, thus reducing their need for external managers, according to Markus Ohlig of research firm Greenwich Associates. That seems a long way off for pension plans in the U.K., where virtually all of them are still relying on outside help, while their mainland counterparts already manage about 70% of their assets in house, Ohlig said.