Funds of hedge funds reverse post-crisis decline

Date: Tuesday, March 8, 2011
Author: Laurence Fletcher, Reuters

* Firms with more than $1 bln see assets rise 5 pct in H2

* Top 10 funds grow 10 percent

* Blackstone biggest manager, GAM drops out of top 10

LONDON, March 7 (Reuters) - The fund of hedge funds industry has reversed a post credit-crisis decline to grow 5 percent in the second half of 2010, as it rebuilds its reputation after some funds invested with fraudster Bernard Madoff. Data group HedgeFund Intelligence showed on Monday that firms with $1 billion or more under management now run a combined $625 billion in assets, although this is still well down from their more than $1 trillion peak in 2007.

Blackstone remains the biggest fund of funds firm with $32.9 billion in assets at the end of last year, while HSBC Alternative Investments is second with $28 billion.

GAM Multi-Manager, which was eighth with $17 billion in assets in June 2010, has dropped out of the top ten.

BlackRock Alternative Advisors has risen from ninth to seventh as assets grew 13 percent over six months.

For a graph of the 10 biggest funds of hedge funds firms: r.reuters.com/paj48r

Overall, assets run by the 10 biggest firms rose 10 percent, as investors sought the perceived safety of larger firms, which they often believe can provide better infrastructure.

The industry's gains will have been helped by positive performance in the second half of 2010, although HFI did not provide a precise breakdown of flows and performance.

Funds of funds, which hold a basket of hedge funds with the aim of spreading out risk, have been under pressure after losing 21 percent in 2008 -- more than the average hedge fund -- and then failing to match hedge fund gains in 2009 or 2010, according to Hedge Fund Research. The industry's reputation was hit after some firms, including Man Group's RMF unit and UBP, were caught out by Madoff's fraud.