Caught in middle ‘Funds of hedgeg funds’ timing out
Why pay a middleman? That’s what big-time investors are saying to socalled funds of hedge funds. High fees and weak performance have institutions going directly to hedge funds.
Over the last year, assets under management in funds of funds — which are like mutual funds composed of hedge funds instead of stocks — decreased 10.8 percent, to $841.57 billion, according to a recent report from investment management tracking firm eVestment.
Roughly half of the decline is due to losses on poor performance, while the other half — roughly $51.5 billion — is from investor outflows.
Meanwhile, hedge fund flows were slightly positive over the same period.
“Fund of funds have his- torically served as a way to gain diverse exposure to the [hedge fund] industry and I think now institutional investors are more comfortable investing directly,” Peter Laurelli of eVestments told The Post.
Laurelli also noted that despite the transition being slow, there is a clear trend of money flowing from funds of funds directly to hedge funds.
Part of the movement is due to increased transpar- ency in the hedge fund industry, which has led to investors believing that they have a better understanding of hedge fund strategies.
“The sophistication of the primary investors has increased, so they’re bypassing more and more funds of funds,” Laurelli said.
Abandoning funds of funds also means lower fees for investors as they no longer have to pay a middleman for investing in alternative asset classes. The move is especially important for fee-weary institutional investors such as pension funds.
In the meantime, expect more pressure for funds of funds.
“Although the industry is far from lost, we have yet to hit the floor on support levels for funds of hedge funds,” eVestment wrote.