Funds-Of-Hedge Funds Assets Up 4% To $920 Billion

Date: Thursday, December 16, 2010
Author: Murray Coleman, Barron's

The hedge fund industry in recent years has opened its gates, so to speak, to more mainstream investors.

In some cases for as little as $50,000, investors can buy into so-called funds-of-hedge funds. These basically serve as an umbrella holding with a mix of different hedge funds within the same portfolio.

The advantage is supposed to be two-fold: You can sample some of the best managers out there and get into funds that normally would charge $1 million or more to enter.

But after a global credit crunch and recession, hedge funds have suffered both in returns and popularity. Now, with markets coming back, so have assets.

However, larger hedge funds are gaining the most traction, according to analysts.

The latest evidence came out today. HedgeFund.Net released a study of recent trends with the following highlights:

• Funds of hedge funds assets as a percentage of the overall market have declined in recent quarters. According to HFN, that’s “a sign that large investors are increasingly investing directly in hedge funds.”
• Funds of funds had returned an average of 3.37% in 2010, through October. This trailed the hedge fund industry by nearly 4% and lagged the S&P 1200 Global index by 1%. At the same time, the typical fund-of-hedge funds “exhibited a small fraction of the volatility.”
• HFN estimates total FoF assets were $920 billion at the end of Q3 2010, an increase of nearly 4% during the year. Hedge fund assets were up roughly 10% in 2010.