Funds of funds industry growth slows to 4.5%

Date: Monday, September 15, 2008
Author: Hedge Fund Intelligence

Says InvestHedge Billion Dollar Club survey

• Despite a period of negative performance, more than $50 billion was added to the fund of hedge funds universe in the first half of 2008

• Firms with more than $1 billion in assets under management reached a combined amount of $1.16 trillion

• 160 funds of hedge fund management firms have $1 billion under  management including 10 new additions in the first half of 2008

• Funds with $5bn - $10bn under management grew at the fastest rate

• Private bank-owned funds of hedge funds grew faster than any other ownership type

• UBP overtakes UBS as largest single fund of funds entity

(London, 15 September 2008) - The funds of hedge funds industry has shown the first signs of an asset slowdown in recent years, but a net amount of some $50 billion still flowed into the industry during the first half of 2008, despite volatile markets and lacklustre returns, according to the latest survey of the InvestHedge Billion Dollar Club.

Overall the industry had average performance of -1.25% for the first half of 2008, but despite this the industry still grew assets overall by about 4.5%, compared to 17% during the first half of last year.

The largest funds of hedge funds - those with more than $1 billion in assets under management – now control a combined amount of $1.16 trillion in assets, according to the six-month asset flow survey carried out by InvestHedge, the leading publication about investors in hedge funds.

“Overall the industry is still growing and this is still not likely to stop. What is clear after the performance for the first half of this year is that more care will need to be taken in selecting funds of funds as the universe is definitely not uniform in terms of growth and performance,” says Niki Natarajan, editor of InvestHedge. “The fund of hedge fund is still the first time or small hedge fund investors’ vehicle of choice. As the universe gets larger, more skill in selecting funds of funds is needed; it is not a simple task.”

There are 160 funds of hedge fund management companies in the InvestHedge Billion Dollar Club, and if the assets of the smaller 420 or so funds of funds management companies are also included, the overall universe could easily be running up to $1.5 trillion globally, equivalent to more than half of the single manager hedge fund industry’s total assets.

Union Bancaire Privee took the top slot from UBS Global Asset Management A&Q as the largest single allocator by assets under management reaching total assets of $56.87 billion.

But UBS is still the largest overall allocator group in the world with some $60 billion overall, if the assets of UBS Wealth Management USA are also added in.

Man Group, with three major groups that allocate to hedge funds - RMF, Glenwood Capital Investments and Man Global Strategies - has a total of $54 billion in funds of funds assets.

There are now six firms with $30 billion or more each, growing an average of 4.51%. Looking at a split of the growth rates across the universe, it turns out that funds of funds with $5 billion to $10 billion in assets have grown at the fastest rate over the past six months. This universe of 22 firms grew at 8.72%, nearly twice the rate of the universe as a whole. Meanwhile funds of funds backed by private banks saw a growth rate of 8.2%.